One of the biggest drivers of BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) shares is the price of iron ore.
This is because iron ore makes up a significant part of their businesses. If the steel-making ingredient is commanding a high price, BHP and Rio Tinto's profits and dividends can balloon. Conversely, if prices are low, their profits and dividends can come under pressure.
This was evident in the first half of FY 2023 when BHP released its results and reported a 32% reduction in profit after tax to US$6,457 million.
BHP averaged an iron ore price of US$85.46 a tonne for the six months, down from US$113.54 a tonne a year earlier.
The good news is that the price of the base metal has recovered since then and was fetching US$111.30 a tonne overnight. But will prices stay at these levels and support big profits and dividends next year? Let's find out.
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Where is the iron ore price going in 2024?
According to a recent note from Goldman Sachs, its commodities team have laid out their expectations for iron ore in the coming years.
For 2024, the broker expects a pullback in the benchmark iron ore price to an average of US$93 a tonne. This is expected to be driven by supply increasing quicker than demand. Goldman expects iron ore demand to grow by 0.8%, but supply to increase by 3%.
After which, its analysts are forecasting prices to ease to an average of US$85 a tonne in 2025 and then US$84 a tonne in 2026.
Though, it is worth remembering that commodity prices are hard to predict, so Goldman's forecasts could ultimately prove to be wide of the mark. Time will tell if that is the case!
