The iron ore price has been on a remarkable run, rising to almost US$140 per tonne in mid-December.
Various brokers had earlier forecast the iron ore price would fall to below US$100, but the commodity has defied those negative expectations.
So what's going to happen next? One broker has just delivered an optimistic iron ore price forecast for the next two years.
Broker UBS issued the promising note for ASX iron ore shares yesterday.
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Iron ore price forecast
Three of the world's biggest iron ore miners are listed on the ASX. They include BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG).
After bumping up its iron ore price prediction, UBS is more positive on these stocks.
The broker said the iron ore price was expected to stay in the current "elevated" trading range of between US$100 per tonne and US$135 per tonne over the next 24 months. This would be supported by "low inventories, robust demand and limited supply growth".
UBS raised its iron ore price forecast by 20%, 15% and 13% to US$120 per tonne, US$105 per tonne and US$100 per tonne for 2024, 2025 and 2026, respectively.
However, it doesn't expect a large acceleration of demand in 2024 – China has already announced "meaningful stimulus" earlier this year, which the broker thinks is "enough to underpin stable demand in China in 2024 but unlikely to drive a strong impulse as the overall amount is materially less" than previous times in 2009 and 2015.
UBS also acknowledged seaborne iron ore supply from key exporters was lifting, driven by Australia, Brazil and India.
Target prices on the ASX mining shares
A target price is where the broker thinks the share price will be in 12 months from now. A higher commodity price is helpful for the miners' ability to generate profit, as additional revenue for production is largely extra profit. So, let's have a look at how the stronger iron ore price forecast could affect things.
UBS increased its target price for BHP by 12% to $48, implying the valuation will be roughly the same in a year from now because it's already close to $48 right now.
The broker increased its price target for Rio Tinto by 13% to $130. That also implies almost no movement because the Rio Tinto share price is currently $129.50.
The UBS price target on Fortescue shares is $24.40. It's currently at $26.71, so the broker is suggesting a fall of 9%.
UBS has a neutral rating on BHP and Rio Tinto, and it's a sell on Fortescue.
