The BHP Group Ltd (ASX: BHP) share price could have an excellent year in 2023 if the iron ore price goes as high as some analysts are expecting. In 2022, some ASX iron ore shares soared as the price for iron ore boomed.
If the iron ore price rises from here, then names like Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG), and Mineral Resources Limited (ASX: MIN) could also (continue to) do well.
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Iron ore prediction
Analysts at Goldman Sachs have been thinking about where the iron ore price might go in 2023. Resource businesses are heavily reliant on commodity prices for how much profit they are able to make.
According to reporting by the Australian Financial Review, Goldman Sachs has suggested that iron ore prices could rise by around 20% to US$150 per tonne because the iron ore market could swing into a "significant" deficit.
Typically, there is more iron ore demand from China in March and April, which could have an effect. But, this could come at the same time as the market enters a deficit to the tune of 35 million tonnes in the second quarter.
Goldman Sachs' prediction is that iron ore could rise to US$150 per tonne over the next three months and US$135 per tonne over the next six months. Sounds promising for the BHP share price, right?
Goldman Sachs metals strategist Nicholas Snowdon said:
Iron ore possesses one of the most supportive fundamental setups into the second quarter across the industrial metals.
Snowdown also suggested that the low level of iron ore inventory could prove to be a boost for the iron ore price – inventory levels are at the lowest level since 2017 at just 18 days of iron ore coverage. He added:
This offers a significant right tail skew to the onshore iron ore stock cycle this year, likely providing a powerful amplifier to near-term price upside as supply chain confidence stimulates restocking appetite.
While we expect property-related new starts demand to decline less precipitously, we do not see reopening as a regime shift in ferrous as we expect for the rest of the base metals complex.
What could this mean for the BHP share price and others?
Investors usually price a business based on future profit predictions. Higher resource prices should result in the business making higher profits.
BHP recently reported that revenue fell 16% to US$25.7 billion, while attributable profit dropped 32% and its dividend fell by 40% to 90 US cents per share.
The ASX mining share put this lower profit down to lower iron and copper prices.
BHP's average realised price for iron ore per wet metric tonne was US$85.46 in the FY23 first half, down from US$113.54 per tonne in the FY22 first half. That compares to around US$125 per tonne today, according to Commsec.
If the iron ore price does rise to US$135 per tonne and beyond, then this could boost investor sentiment around the BHP share price, but there's certainly no guarantee.
