Mining giants BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG), and Rio Tinto Ltd (ASX: RIO) have come under pressure this month after the iron ore price tumbled.
This weakness continued overnight and saw the benchmark iron ore price fall a further 3.6% to US$105.35 a tonne.
This is down materially from around US$140 a tonne at the end of 2023, and has been driven by concerns over demand from China.
But what is next for the steel-making ingredient? Is this just a temporary blip or the start of greater declines?
Let's take a look what the commodities team at Goldman Sachs is expecting for the iron ore price in the coming years.
Iron ore price forecast
Firstly, let's start with a quarterly view on prices during 2024.
Goldman has been expecting a pullback in prices, but the speed of recent declines appears to have caught it by surprise. It is expecting the following average prices for 2024:
- Q1 US$120 a tonne
- Q2 US$115 a tonne
- Q3 US$105 a tonne
- Q4 US$100 a tonne
This leads to an average price of US$110 a tonne for 2024.
Weakness to continue
The broker expects the trend to continue in the years to come.
As a result, it is forecasting an average benchmark iron ore price of US$95 a tonne in 2025.
After which, it expects further softening to an average of US$93 a tonne in 2026.
Finally, the following year the broker expects a slightly weaker average price of US$92 a tonne in 2027 for the benchmark price.
What about Fortescue's low grade iron ore?
The bad news for Fortescue is that the broker believes that the discount will widen on its low grade iron ore in the coming years.
And given how much the miner is planning to spend on its decarbonisation plans, this could have consequences for its free cash flow and ultimately its dividends.
Goldman expects Fortescue's discount to the benchmark price to be 89% in 2024, 86% in 2025, and 83% in 2026 and 2027.
Should you buy these miners?
Despite forecasting these iron ore price declines, Goldman Sachs remains positive on BHP and Rio Tinto.
It currently has buy ratings on both mining shares with price targets of $49.40 and $138.30, respectively.
