Mining Stocks Overvalued as China Demand Slows

Gold is among the few mined commodities that isn't directly tied to the fortunes of Chinese fixed asset investment

Daniel Rohr, CFA 28 September, 2017 | 10:39AM

Gold is one of the few commodities not affected by China demand

Mined commodity and miner share prices are overvalued, propped up by Chinese stimulus, say Morningstar equity analysts. Iron ore's relative buoyancy since early 2016 is emblematic of most industrial commodities. The steelmaking ingredient's Indian summer continued into July and August.

The iron ore price rose from $63 per metric ton at the start of July to peak just shy of $80 per metric ton in August, despite record and rising iron ore port stockpiles. Recent conditions have been highly favourable for miners, particularly the bulk miners, as exemplified by our forecast 2017 adjusted earnings for Rio Tinto (RIO), which are in line with 2012 levels. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Rio Tinto PLC4,303.50 GBX-0.70

About Author

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

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