Are BHP shares about to pounce, or could the iron ore price spoil the party?

Could BHP go higher?

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Key points

  • BHP shares have jumped 5% in the last month
  • Analysts have a buy rating on the company's share price 
  • However, the outlook for the iron ore price could play a part in the BHP share price performance 

The BHP Group Ltd (ASX: BHP) share price has climbed in the last month, but can this top run continue?

BHP shares have lifted 5.3% from $44.08 at market close on 16 May to $46.43 at market close on Friday. For perspective, the S&P/ASX 200 (ASX: XJO) has slipped 0.22% in a month.

So what is the outlook for the iron ore price, and how could this impact BHP shares?

Will BHP shares lift?

Like Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG), BHP is a major iron ore-producing giant. Iron ore is used to make steel.

The biggest iron ore importer in the world is China. Therefore, economic news out of China can influence market sentiment on the iron ore price.

The outlook for iron ore is varied and appears to be changing almost on a daily basis at the moment.

Early last week, iron ore prices descended amid a caution from Goldman Sachs that property weakness could drag on China's economy.

Citi Group also cut its iron ore forecast to $100 in the third quarter and $90 in the fourth quarter of this year in early June.

Discussing the iron ore price in quotes cited by Bloomberg, China Industrial Futures Co analyst Wei Ying said:

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.

However, iron ore prices rallied later in the week on the back of news China is considering stimulus measures for the economy. Commenting on this prospect in a research note on Thursday, ANZ economist John Bromhead said:

Iron ore futures extended recent gains as investors bet on further stimulus measures boosting demand for iron ore and steel.

Sentiment was supported by data from the China Iron and Steel Association that showed steel output at major Chinese mills jumped 6.5% in early June from late May.

ANZ commodity strategists Daniel Hynes and Soni Kumari are concerned muted steel demand from China property markets could be a key headwind for iron ore in the future, forecasting: "We see prices finding a floor near US$95 a tonne".

Copper prices could also impact the BHP share price going forward. In early May, BHP finalised the deal to take over Oz Minerals. This provides BHP with more exposure to copper via the Prominent Hill and Carrapateena mines. BHP already owns Olympic Dam, also in South Australia.

Meanwhile, analysts at Goldman Sachs are predicting BHP will pay total fully franked dividends of US$1.90 in FY 2023 and US$1.50 in FY 2024.

Goldman has a buy rating on BHP in light of a "major opportunity" to grow copper production. Analysts said:

For BHP, we continue to believe that its major opportunity (and challenge) is growing copper production and offsetting copper reserve depletion and grade decline in Chile, and growing copper production and capturing synergies in South Australia.

BHP share price snapshot

The BHP share price has risen 5.48% in the last year, while it has elevated 1.73% in the year to date.

This ASX 200 mining share has a market capitalisation of just over $235 billion based on the latest share price.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 positions in and has recommended Goldman Sachs Group. 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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