Iron ore to outpace copper in Q3

An increase in steel prices coupled with burgeoning demand for high quality ore from Chinese producers should keep iron ore miners buoyant
18th June 2021
Resources Rising Stars

An increase in steel prices coupled with burgeoning demand for high quality ore from Chinese producers should keep iron ore miners buoyant in the third quarter as their copper-focused counterparts slide on softening prices, according to investment bank Jefferies (reports MiningNews).

Jefferies analyst Christopher LaFemina said the bank expected iron ore mining shares to outperform in Q3 "on the back of very strong cashflow, record-high capital returns, consensus earnings upgrades, and relative resilience in the price of iron ore versus prices of copper and other base metals".

The bank said an average iron ore price for the second half of the year near US$200/t "would not be surprising", noting a current spot price of $223/t.

"New supply will come, as iron ore is not resource-constrained, but a steepening cost curve and the lag between high prices and a supply response present scope for material further consensus upgrades," said Jefferies.

While the iron ore boom continues, Jefferies said the recent softening in base metals prices was likely to continue over the summer "due to a cyclical slowdown in China and seasonal demand weakness".

The bank said it expected copper to fall back below $4/lb in the third quarter "before rallying to more than $5/lb on the next push higher".

"Copper miners are unlikely to deliver large capital returns until 2022…[they] are more about leverage to global economic growth and decarbonisation in the years ahead."

Despite its bearish view on copper in the coming months, Jefferies is very bullish on the red metal in the medium term. It forecasts an average price of $4.50/lb for 2021, rising steadily over the following three years to peak at $7/lb in 2025.

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