FMG share price: where next as iron ore prices remain elevated?

Fortescue Metals Group (ASX: FMG) has proven to be one of the best performing stocks on the ASX 200 in the last year – rising ~160% in that period.

In the shorter term, the stock has also continued to outperform: over the last five trading sessions FMG has risen ~13% (even when including a healthy pull-back today which saw the stock give up some of these gains, dropping 1.5%).

At the close of Thursday’s session, the FMG share price stood at $12.48.

Yet for all that momentum, in our most recent piece covering the stock – we noted that:

‘Fortescue (ASX: FMG) currently has a 12-month average price target of $8.85 – split between nine HOLD ratings and nine SELL ratings, according to Bloomberg Data.’

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FMG share price: an evolving landscape

The picture for Fortescue looks to be changing somewhat – as the dynamics of the iron ore market shift, with some expecting Chinese steel demand to come in stronger than previously thought.

Indeed, as a possible sign of changing sentiments, Credit Suisse yesterday upgraded their rating on Fortescue from 'underperform' to 'neutral'. In step with that, the investment bank also upgraded their 12-month share price target on the stock – from $7.50 per share to $11.00 per share.

Interestingly, though the investment bank had previously forecast a ~3% decline in Chinese steel demand in CY20 – Credit Suisse now expects Chinese steel demand to actually increase 1.6% in 2020.

'We consequently bump up our in house iron ore prices (to US$90/t in CY20 from US$80 and to US$80/t from US$65/t in CY21.)’

Moreover and looking at the catalysts behind FMG’s recent share price run-up, the investment bank posited that the company’s:

'Share price continues to reap the rewards of higher iron ore prices, strong but slightly softer price realisations, best-in-class operational performance and a balance sheet that is now in a position to withstand any reasonable bear case scenario.'

Ultimately, with the potential prospect of iron ore prices remaining higher for longer, Credit Suisse have also upgraded their earnings forecasts for FMG. Here the metals & mining company is expected to report earnings per share (EPS) figures of: US$1.44 in FY20, US$1.07 in FY21 and US$0.74 in FY22.

As has always been the case for Fortescue Metals Group – given its status as a pure-play iron ore miner – weakness in the price of iron ore remains the key risk that investors should be aware of.

FMG is set to release its December Quarterly Production Report on January 30.

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