The Fortescue Metals Group Limited (ASX: FMG) share price went up and down like a rollercoaster last year. Will the bulls or the bears win in 2023?
Resource prices are notoriously difficult to predict, which makes it hard to guess how the share prices of ASX mining shares will perform.
At the moment, Fortescue's earnings are highly linked to the iron ore price.
Mining costs don't typically change much in the shorter term, so when the iron ore price increases it mostly adds to the company's net profit after tax (NPAT), aside from paying more to the government.
But, the opposite can be said when the iron ore price goes down, which largely wipes off the company's net profit.
Therefore, the direction of the iron ore price from here could have a big impact on things.
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Which way will things go this year for the Fortescue share price?
Adrian Prendergast, senior mining and energy analyst from Morgans, suggests that while a Chinese growth recovery can be a positive for the demand for steel and iron, the ASX share market has already moved to price in the recovery before it has unfolded.
While he said it's encouraging that the iron ore price is staying above US$100 per tonne, the Morgans rating is reduce on Fortescue as it trades to a premium to the price target – that's where the broker thinks the Fortescue share price will be in 12 months.
But, the broker Citi has suggested that the iron ore price could rise to as high as US$150 per tonne by June, according to reporting by the Australian Financial Review. The suggestion is that the relaxation of COVID restrictions is expected to mean higher industrial output by China and that iron ore could do well if "China rolls out meaningful in the next three [to] six months". The AFR reported that Citi wrote:
Policymakers appear determined to support debt-trapped property developers. This reduces the downside risk for iron ore.
The Fortescue share price has climbed more than 20% over the past six months, with the iron ore price at around US$118 per tonne, according to Commsec.
According to Commsec, the broker Goldman Sachs has a sell rating on the iron ore ASX share, with a target price of just $13.80.
Of the 18 analyst calls that Commsec is currently covering, 12 of them are sells and six are holds. So, predominately negative.
Foolish takeaway
While I believe in the long-term future of Fortescue shares, particularly the green energy plans of Fortescue Future Industries (FFI), I think that the Fortescue share price can only climb considerably higher from here (with the Fortescue share price being $21) if the iron ore price keeps going up.
I'm personally waiting for the share price to drop below $17 before considering buying more shares for a good margin of safety. It's already a sizeable part of my portfolio.
