Could the latest China trade data be a good sign for the Fortescue share price?

What's ahead for Fortescue?

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Key points

  • China's iron ore imports in May were better than expected
  • However, analysts remain concerned about China's property sector
  • Fortescue shares have risen slightly in the last month 

The Fortescue Metals Group Ltd (ASX: FMG) share price has fallen slightly in the last year, but how will China's steel demand impact iron ore sentiment?

Fortescue shares have slid 4.36% in the last year. For perspective, the S&P/ASX 200 Materials Index (ASX: XMJ) has jumped 0.02% in the past year.

Let's take a look at the outlook for the Fortescue share price.

What's the outlook?

Firstly, it's worth noting that Fortescue is a huge producer of iron ore. Fortescue is also building hydropower, geothermal, wind and solar assets via Fortescue Future Industries.

Looking at the iron ore outlook, China commodity imports for May defied expectations, ANZ research highlighted in a recent report.

Iron ore imports rose 6.34% month on month and 3.95% year on year to 96.17 million in May, recent data shows. Commenting on this trend, ANZ commodity strategists Daniel Hynes and Soni Kumari said:

Iron ore imports saw a surprise increase to 96mt despite narrowing steel mill profitability. Declining port inventories encouraged more shipments.

However, despite this, the strategists still have concerns about the iron ore outlook. In a commodity report published on 8 June, Hynes and Kumari noted "muted steel demand from China's property markets during the peak construction season is a key headwind for iron ore and coking coal demand". They have a US $95 a tonne price target on iron ore, and commented:

Narrowing profit margins could see loss-making steel plants curtail operations, which would slow
steel production growth in Q2 2023.

Further, the increased amount of steel produced using the Electric Arc Furnace process is reducing demand for iron ore.

Meanwhile, analysts at Goldman Sachs warned China's property recovery could be "L-shaped", impacting the country's economy Bloomberg reported. Steel is used in property construction and iron ore is the major ingredient in steel.

Citi has also sounded a similar warning on steel demand in China if the property rebound is weak, the publication noted.

Commenting on the outlook for iron ore, China Industrial Futures Co analyst Wei Ying told the publication:

We noticed some bulls are exiting as investors are cautious in chasing a rally like this.

After all, the iron ore market will be in a slight surplus in the second half and we expect inventories at Chinese ports to increase.

Fortescue share price snapshot

The Fortescue share price has climbed 0.07% year to date and 2% in the past month.

This ASX 200 mining share has a market cap of about $63.2 billion based on the latest share price.

Motley Fool contributor Monica O'Shea has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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