Industrial metal prices have recently rebounded, but European mining stocks and earnings expectations have not yet fully caught up. The Stoxx 600 Basic Resources Index has risen approximately 26% this year, but mining stocks have recently again fallen behind spot metal prices.
JPMorgan strategists believe this gap could narrow if the US dollar weakens again in the coming months while Asian economic activity improves.
More noteworthy is the earnings side. During this earnings season, most large mining companies still outperformed expectations in terms of profits and revenue, despite significant fluctuations in costs such as diesel, electricity, and transportation. Morgan Stanley points out that
actual costs for mining companies are significantly better than implied by the input environment, and major integrated miners generally expect increased production in the second half of the year.
Therefore, the current logic for mining stocks is no longer just about "rising metal prices." If prices for copper, aluminum, and other metals remain strong, and unit costs continue to be controlled,
rising commodity prices could further transmit to earnings expectations, pushing mining companies' EPS expectations to catch up with spot metal performance.
