BHP Group Ltd (ASX: BHP) shares are slowly but steadily rising. With the improving conditions for the ASX mining share, is it possible that BHP could reach a share price of $50?
First, let me say that investors shouldn't focus too much on short-term movements – Christmas is only a month and a half away. Hopefully, everyone's investment timeframe is longer than two months.
The mining giant is in an interesting place – the global economic picture is uncertain with elevated interest rates. But, the monthly profit potential is increasing as the iron ore price strengthens.
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What's happening with the iron ore price?
According to Trading Economics, the iron ore price has reached US$130 per tonne, which was the highest in over seven months, due to "robust demand and risks to supply".
Part of the optimism comes from the fact that the Chinese government has stated it will accelerate issuing bonds after providing for an extra CNY 1 trillion of debt, targeting steel-heavy infrastructure and manufacturing projects.
Demand for infrastructure in China is expected to offset lower iron ore demand from the residential construction sector amid debt problems.
Trading Economics suggests that iron ore is expected to trade at US$133 per tonne by the end of the quarter, based on global macro models and analyst expectations. In 12 months, the Trading Economics team is expecting the iron ore price to trade at US$142.60 per tonne.
The iron ore price is key for the BHP share price because that division is usually the biggest generator of profit for the company. Investors often base their valuation thoughts on profit expectations, so if the ASX mining share is to reach $50, then iron ore will be the key driver.
What do brokers think of the BHP share price?
I'm not going to predict where I think the BHP share price might go in the short term, though I will refer to what brokers are forecasting with the mining giant.
The broker UBS currently has a neutral rating on BHP shares, with a price target of $43. A price target is where the broker thinks the share price will be in 12 months from now. In other words, UBS thinks that BHP will be lower in 2024 than it is today.
UBS thinks that iron ore prices will stay between US$100 per tonne to US$130 per tonne over the next half-year period. On that estimate, the broker is suggesting the iron ore price has peaked. It'll be interesting to see if iron ore can outperform those expectations.
Investors may also be curious to see how the copper price performs, as BHP recently increased its exposure through the acquisition of OZ Minerals.
BHP share price snapshot
Since the start of 2023, BHP shares have risen by 0.4%.
