FMG share price closes at $15.51, as iron ore trades well above US$100/t

We examine some of the recent developments in the iron ore market as well as look at the Goldman Sachs short-term price outlook for the all-important commodity.

FMG share price continues to rise, iron ore prices remain elevated

Australia’s large-cap iron ore miners continue to trend higher – as iron ore futures confidently trade above the US$100 per tonne mark.

Indeed, over the last three months, the share prices of BHP Group (BHP), Fortescue Metals Group (FMG) and Rio Tinto (RIO) have all risen, even as uncertainty continues to dominate equity markets. All of this comes as Australia’s iron ore exports surge, with the Pilbara Ports Authority (PPA) last Thursday revealing record throughput figures for FY19/20 – in spite of the coronavirus pandemic.

Here, the PPA reported that Port Hedland’s annual iron ore exports came in at 531.5 million tonnes, up 24.9 million tonnes, or 5%, from the year prior. Overall, the PPA reported that total annual throughput grew 3%, to 717.2 million tonnes.

FMG has been the best performer of Australia’s large cap miners, rising a little over 30% in the last three months – to last trade at $15.510 per share on an implied market capitalisation of ~$47.29 billion.

FMG’s yield story

Analysts at Macquarie Wealth Management, like the broader market, continue to favour Fortescue, last week reiterating their Outperform rating while leaving their price target of $15.00 per share unchanged. For investors focused on income, as analysts from Macquarie point out:

‘Buoyant prices continue to drive strong free cash flow for iron ore producers which we view as a proxy for potential shareholder returns. Of the large cap miners, FMG has the largest yield at 13% for FY20.’

Macquarie analysts are currently forecasting that Fortescue will pay a final dividend of $1.00 per share in FY20.

The analyst take: the iron ore price outlook

In recent times Australia’s big three miners have found share price support from elevated iron ore prices, driven primarily by robust Chinese demand and supply-side issues in Brazil.

Looking at futures markets, CME’s 62% Fe iron ore front-month (July) contract last traded hands at US$106.93 per tonne. The November contract, by comparison, is the closest to drop below the elusive US$100 per tonne mark, last trading at US$99.04 per tonne.

Like Macquarie, analysts from Goldman are optimistic about the outlook for iron ore; with the investment bank’s analysts expecting iron ore prices to remain elevated in the near-term, saying:

'The persistent strength in Chinese steel output, combined with lacklustre volume growth in the seaborne market, have led us to upgrade prices for the remainder of 2020.’

Goldman analysts finished by saying that ‘Higher Brazil exports should dampen some of the tension, but we now expect prices to hover over $90/t for the next two quarters.’

Other bits and pieces

Looking forward, FMG is set to release its June quarter production results on 30 July and its full-year FY20 results on 24 August.

Macquarie is currently estimating that Fortescue will report June quarterly shipments of 45.0 million tonnes.

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