Outlook: Iron Ore, Steel and Gold

Morningstar equity analysts consider miner share prices as overvalued as commodity prices have cooled

Daniel Rohr, CFA 21 July, 2017 | 8:46AM

With few exceptions, we continue to see commodity and miner share prices as overvalued. After a very strong start to the year, the markets for mined commodities have generally softened. Market attention has turned from the tailwind of last year‘s fiscal stimulus in China and enthusiasm around U.S.

Iron Ore Outlook

President Donald Trump to the headwind posed by structural change and the reduced importance of fixed-asset investment for China‘s future economic growth. The second quarter of 2017 saw a meaningful correction in mined commodity prices, particularly for iron ore. The benchmark 62% iron ore spot price of $54 per metric ton is down nearly 40% from the buoyant first quarter of $85 per metric ton. With further low-cost additions looming, demand from China likely to be anaemic, and port stockpiles at high and still-rising levels, the market continues to look oversupplied longer term.

Coking coal has fared better, with the disruption to Australian supply from Cyclone Debbie sending the spot price above $300 per metric ton. However, spot markets have quickly cooled as supply has recovered, and we now expect long-term drivers to reassert on the market.

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About Author

Daniel Rohr, CFA  is a senior equity analyst at Morningstar.

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