The BHP Group Ltd (ASX: BHP) share price is pushing higher on Friday morning.
At the time of writing, the mining giant's shares are up 2% to $47.18. This follows news that the iron ore price surpassed US$110 a tonne overnight.
This extends its strong run since early November and means the BHP share price is now up 17% over the last 12 months.
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Where next for the BHP share price?
According to a note out of Morgans, its analysts believe that the BHP share price may have peaked for the time being.
This morning, the broker has downgraded the Big Australian's shares to a hold rating with a trimmed price target of $44.80.
Based on the current BHP share price, this implies potential downside of 5% for investors.
Why did the broker downgrade its shares?
Morgans made the move on the belief that investors are getting ahead of themselves in respect to China's recovery from COVID-19. It commented:
While hopeful of a China growth recovery, which would be positive for steel/iron ore demand, we are less comfortable with the equity market already moving to price in the recovery before it unfolds.
Over the last month iron ore price (+27%) and share prices for BHP (+16%), RIO (+20%) and FMG (+27%) have bounced hard off their November lows. We agree that the developments are likely to see improved demand conditions in early 2023, but the issue is how fast the equity market has moved to price in this recovery.
In light of the above, the broker has downgraded BHP and Rio Tinto Ltd (ASX: RIO), as well as reaffirming its reduce (sell) rating on the shares of Fortescue Metals Group Limited (ASX: FMG).
The broker concludes:
We can certainly see the potential green shoots for a recovery in demand drivers for steel, but it is also not hard to see a fresh bout of volatility before that recovery takes hold. We view current share prices on our large-cap iron ore miners as suggesting we have to 'pay up front' for that potential recovery, leaving us with lower conviction. As a result we downgrade our rating on BHP and RIO to HOLD (from ADD), while maintaining a REDUCE on FMG.
