Why Macquarie just boosted the FMG, BHP and RIO earnings outlook

'The upgrades to our iron ore price forecasts have transformed the earnings outlook for the producers.'

Iron ore prices in focus

Despite a pandemic which temporarily decimated the country’s economy and employment market, calamitous equity market declines, and a still-distorted property market, iron ore has continued to be a consistent centre piece of Australia’s economy.

Illustrating that point of dominance: iron ore export earnings passed $100 billion in 2019-20 and were most recently forecast to pass $136 billion in 2020-21, according to the Department of Industry, Science, Energy and Resources.

In fact so furious were the price swings of the commodity during the first half of 2021, that the Chinese Iron and Steel Association implored regulators to step in, arguing that speculation has seeped into iron ore markets.

Regulators haven’t stepped in and iron ore prices have continued to surge, with iron ore spot prices last trading above US$210 per tonne.

Free markets can be annoying sometimes.

What's your view on the iron ore market or iron ore stocks? Whatever you think, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Fortescue Metals Group using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘FMG’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

Alternatively, you can invest in shares directly through our share trading service.

In an upgrade cycle

Analysts from Macquarie’s commodity strategy team – who have long been bullish on the commodity and the stocks beholden to it – today bumped up their price forecast for iron ore. Here it was argued that:

‘A step change in Chinese demand, combined with a lack of expansions, largely from the major producers, is now expected to result in more high-cost supply being required in the medium to long term to balance the iron ore market than we had previously anticipated.’

They said the expectation were now for the commodity to finish the calendar year at US$158 per tonne (representing a 20% upward revision on previous forecasts). They also bumped up their CY22 and CY23 iron ore price forecasts, to US$120 per tonne and US$95 per tonne, respectively.

With iron ore expected to stay higher for longer, the broker also increased their earnings and share price forecasts for Australia’s big three miners – BHP Group (ticker: BHP), Rio Tinto (ticker: RIO) and Fortescue Metals Group (ticker: FMG).

Of the big three miners, FMG got the biggest price target revision, up 17% to $27 per share; followed by RIO, now at $157 per share, and lastly BHP, at $61 per share.

Earnings across FY21 to FY26 were also raised between the big three: Approximately 30% for BHP, and approximately 45% for both RIO and FMG.

‘The upgrades to our iron ore price forecasts have transformed the earnings outlook for the producers. We continue to favour RIO over BHP and FMG, although the gap has narrowed, with all three stocks trading on similar free cash flow yields for FY22,’ Macquarie analysts said.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.