Buying ASX 200 mining shares? Here's Goldman Sachs' latest iron ore forecast

The big three ASX 200 mining shares have enjoyed a rebound in iron ore prices since November 2022. But can it last?

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Buying S&P/ASX 200 Index (ASX: XJO) mining shares?

If you own the big mining stocks, or are thinking of investing in them, you're likely aware of how critical the price of iron ore is to their share price performance.

Of course, there are numerous company-specific and macroeconomic factors at play too. That's as well as the price of the other metals the ASX 200 mining shares dig from the earth, like copper.

But when it comes to Fortescue Metals Group Ltd (ASX: FMG), BHP Group Ltd (ASX: BHP), and Rio Tinto Ltd (ASX: RIO), all three miners derive the biggest share of their revenue from iron ore.

To see what I mean, just turn the calendar back 12 months.

One year ago, the industrial metal was trading for just over US$90 per tonne. Down 1.2% overnight, today that same tonne is worth just over US$122.

Keeping in mind that iron ore is not the sole indicator of how well the ASX 200 mining shares will perform, here's how they've moved over the year (as of market close on Tuesday):

  • BHP shares are up 13%
  • Fortescue shares are up 40%
  • Rio Tinto shares are up 26%

Now, here's the latest iron ore price forecast from Goldman Sachs.

ASX 200 mining shares could enjoy further tailwinds

For much of 2023, analysts were forecasting a sharp pullback in the iron ore price, perhaps to US$90 a tonne or below. This was largely based on a sluggish demand outlook from China's iron ore-hungry steel factories and a potential oversupply of the metal.

Not only has iron ore defied those bearish forecasts, rewarding investors in ASX 200 mining shares, but Goldman Sachs now believes the metal will trend higher from here.

Goldman Sachs metals analyst Nicholas Snowdon's three-month target for the iron ore price now stands at US$130 per tonne, retracing to US$120 per tonne over six months.

Snowdon said that earlier expectations of surplus supply due to China's struggling property sector had failed to eventuate.

"The commodity's fundamental and price resilience has defied these expectations. Indeed, rather than facing a surplus for this year, the iron ore market is now set for a clear deficit," he said (courtesy of The Australian Financial Review).

Despite lower steel demand from China, the government hasn't moved to cut steel production as it had flagged earlier this year. Snowdon also pointed to lower iron ore supply out of Brazil and China as supporting the price over the months ahead.

In what would be a good upside risk for the ASX 200 mining shares, Snowdon said:

The path into 2024 now points to a balanced market versus previous surplus, suggesting no imminent glut risk ahead. With onshore mill restocking likely ahead of Chinese New Year and low supply chain inventories, price resilience with greater risk to the upside than downside is now the year-end setting.

Motley Fool contributor Bernd Struben 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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