Iron Ore Won't Soar Forever
Those miners appear overpriced, but we see value emerging in base metals and coal.
Iron ore and gold prices are flying high, but we don’t think this will last. Iron ore is benefiting from unusually strong demand and supply disruptions while gold is rising with negative interest rates. The global miners remain overvalued, in our view. The sector trades at an average 10% premium to our fair value estimates versus a 20% premium three months ago. The iron ore miners-- BHP (BHP)/(BBL), Rio Tinto (RIO), Vale (VALE), and Fortescue--on average are at a 30% premium, while the rest of our coverage is only at a 4% premium. The coal miners have been soft, and New Hope and Whitehaven now stand out as being relatively undervalued.
We’ve raised our near-term iron ore forecasts meaningfully given higher spot prices, stronger near-term demand from China, and potential for Vale’s supply issues to persist, but our long-term price is unchanged. We now forecast $41 per tonne iron ore from 2023 with our long-term price kicking in from 2023 versus 2022 previously. The Feijao dam failure has yet to play out, and a slower return to normal production from Vale means that elevated iron ore prices can persist for longer. Our metallurgical coal price forecasts also benefit from higher near-term steel production. On the negative side, spot prices for nickel and zinc have fallen with lower industrial production.
Mathew Hodge does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.