Every so often, I like to poke fun at the Australian Government’s Resource and Energy Outlook.
That’s because this team of commodity permabears has consistently been wrong regarding things like iron ore prices.
So, what’s their latest report predicting for this year and next?
According to the Department of Industry, Science and Resources quarterly outlook, China’s economy is slowing.
Go figure.
Meanwhile, global mine output is rising…mostly attributed to Rio Tinto’s anticipated Simandou starting operations later in the year.
So, with that, the department expects iron ore prices to fall hard to around US$80 a tonne this year.
Then, falling further into 2026 to just US$76 a tonne.
For now, iron ore is holding steady, just above US$100.
If you want to dive into the full 130-page report, you can do so here.
But save yourself the time; all you need to know is this…
Mining Memo’s Take
It’s easy to be bearish on China and, by default, the iron ore market.
But commentators continue to make the mistake of interpreting the Chinese economy through a Western lens.
Take tariffs…
Donald Trump’s 10% increase in Chinese goods entering the US will theoretically impact Chinese exports.
That’s expected to dent the country’s critical export revenue.
But as I explained to my paid readership group at Diggers & Drillers a few weeks back, PARADOXICALLY, tariffs could be a good thing for the iron ore market!
And while there are always risks involved when it comes to mining stocks…
The stage is set…
As any resource investor would know, iron ore stocks are pegged to China’s stimulus.
And nothing much has changed over the last 15 years.
Except for one thing…
A point of difference that could make 2025 a particularly good year for this beaten-down market is that China has already laid out its stimulus playbook.
That’s rare.
Last December, officials announced ‘they would deliver whatever stimulus was needed to counter the impact of Trump’s trade tariffs.’
In other words, if Trump follows through with tariffs, the Chinese Government pledged a helping hand to prop up business and consumer confidence.
It’s a case of ‘bad news’ (in the form of tariffs) that could spark a rally in iron ore stocks in 2025.
Another factor…
Forward-looking iron ore stocks priced in Trump’s tariffs months ago.
You’ll recall these stocks sold off heavily on his election win last year. That potentially limits the downside risk once tariffs are enforced.
Yet, the potential upside remains firmly in place.
The only question is: How far will China take stimulus in 2025?
That’s the main ‘unknown’ here.
If stimulus fails to meet expectations, well, obviously, stocks will stagnate.
But given the low expectations and iron ore miners hovering just above their 2024 lows, I believe there’s plenty of room for a surprise rally.
Finally…
Today’s lacklustre anticipation of stimulus contrasts dramatically with what we saw in early 2023 when China emerged from Covid lockdowns.
Back then, mining stocks surged on expectations that China would stimulate its economy to high heaven!
Yet that never happened.
Expectations weren’t met, and resource stocks eventually cratered.
This time around, though, the market is not pricing in the impact of the stimulus.
That’s despite authorities firmly committing themselves!
Of course, they could always back down and not stimulate at all… But would this regime risk losing face among its loyal Chinese citizens?
Not likely.
That’s why we’re preparing our portfolio RIGHT NOW, ahead of potential market reactions to bullish developments in 2025.
Outcomes that could serve stocks linked to things like copper, aluminium, zinc AND iron ore exceptionally well.
You can find out more here.
Until next time.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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