Jefferies sees more upside ahead for metals and mining stocks

Investing.com -- Metals and mining shares are set to continue outperforming as geopolitical risks, inflation pressures and real-asset demand intensify following the outbreak of war in Iran, Jefferies analyst Christopher LaFemina said in a note on Monday.

Jefferies stated that its long-held view is that the sector’s six-month rally reflects “elevated geopolitical risks, a structurally weakening dollar and the risk of inflation.”

The firm added that the weekend’s developments, while “clearly very unfortunate, are fundamentally positive for the sector.”

LaFemina explained that a closure of the Strait of Hormuz would hit key supply chains, noting that around “9% of global aluminium production is from Gulf states” dependent on the route, while Iran itself accounts for roughly “3% of global iron ore production.”

Jefferies warned that the conflict also raises indirect risks through “rising and steepening cost curves due to higher energy prices,” supply-chain pressures and potential stockpiling of critical minerals such as copper.

Inflation dynamics add to the bullish backdrop. Jefferies noted that commodities “tend to provide an effective hedge against inflation,” especially in a scenario where central banks may need to increase money supply to support governments during an extended conflict.

Although the war has strengthened the dollar, Jefferies believes “geopolitical and inflation factors matter more,” supporting higher commodity prices.

Jefferies reiterated its positive stance on the sector, highlighting Freeport-McMoRan, Glencore, Anglo American and Alcoa as preferred names, but adding it expects “a rising tide to lift all boats.”

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