If you're a shareholder of BHP Group Ltd (ASX: BHP), Fortescue Metals Group Ltd (ASX: FMG), or Rio Tinto Ltd (ASX: RIO), then you will no doubt know how important the iron ore price is for these miners.
When the price of the steel-making ingredient is strong, it gives the three miners' earnings a big boost, and vice versa when its price softens.
You only need to look at BHP's FY 2023 results to see this. With the average iron ore price during the financial year tumbling compared to the previous year, BHP's earnings weakened materially. This of course put a lot of pressure on the BHP dividend and led to a significant year on year cut.
So, with that in mind, let's see where the benchmark 62% fines iron ore price could be going in the coming years.
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Iron ore price forecast
According to a note out of Goldman Sachs, its analysts have laid out where they think the base metal is heading over the next four years.
To begin with, for the fourth quarter of 2023, Goldman is expecting an average iron ore price of US$90 a tonne. But with the spot price currently fetching US$121.75 a tonne, this implies a sizeable 26% pullback from current levels. Something that arguably looks a little unlikely given recent strength.
Moving on, in 2024, the broker is expecting benchmark 62% fines to command an average price of US$93 a tonne. After which, Goldman is expecting further weakness in the years that follow. It has pencilled in an average iron ore price of US$85 a tonne in 2025 and then US$84 a tonne in 2026.
In summary, it is forecasting:
- Q4 of 2023: US$90 a tonne
- 2024: US$93 a tonne
- 2025: US$85 a tonne
- 2026: US$84 a tonne
These forecasts are based on Goldman's expectation for subdued demand for iron ore in the coming years. For example, it expects global iron ore demand to grow 0.2% in 2023, remain flat in 2024, and then fall 1.1% in 2025. At the same time, it forecasts iron ore supply to increase by 1.1% in 2023, 2.1% in 2024, and then 1.4% in 2025.
However, it is worth remembering that predicting commodity prices is notoriously difficult and a lot can change in a matter of months not just years.
