Citi Predicts Higher-Than-Expected Prices for Iron Ore and Copper

In a noteworthy market update, esteemed broker Citi has revised its three-month forecast, anticipating a significant surge in the iron ore price to US$140 per tonne and an increase in the copper price to US$8,600 per tonne. This adjustment marks a notable uptick from Citi's earlier predictions of US$120 per tonne for iron ore and US$7,500 per tonne for copper. Investors in ASX mining stocks may find these adjusted forecasts particularly relevant to their portfolios.

Impacts on ASX FMG and ASX BHP

The revised forecast carries significant implications, especially for ASX-listed mining companies such as Fortescue Metals Group Ltd (ASX: FMG) and BHP Group Ltd (ASX: BHP). The heightened iron ore prices align with FMG's interests, contributing to its robust performance and two-year share price highs. BHP, having strategically acquired copper miner Oz Minerals, is poised to benefit from the anticipated surge in copper prices, aligning with its diversified mining portfolio.

Fiscal Support Amplifies Optimism

Citi attributes this optimistic outlook to a larger and more imminent fiscal support initiative by the Chinese government. The focus is on expanding the economy and providing essential support to the ailing property market. The broker believes that China's fiscal expansion, particularly directed at investment-led growth, will play a pivotal role in driving the anticipated surge in commodity prices.

China's Economic Growth Fuels Demand

Historically, when China boosts its economic growth, it translates to increased demand for Australian metals and minerals, notably iron ore and copper. China, being the world's largest iron ore consumer, imports a staggering 71% of its iron ore supply, as per Australian government data. This heightened demand from China directly influences and propels the iron ore price upward.

Citi Analysts' Insight

According to Citi analysts, the base case scenario suggests that China is likely to intensify fiscal expansion, focusing on investment-led growth, particularly in urban village redevelopment and affordable housing. This strategic approach is expected to support overall property market-related activity throughout 2024, instilling confidence in stable consumption and countering declines forecasted in the commodity housing component.

Iron Ore Market Dynamics

The iron ore price has already demonstrated strength, rising by 1.49% to reach US$136.50 per tonne in overnight trading. This marks its highest level in over eight months, fueled by expectations of robust demand coinciding with potential risks to supply. Beijing's commitment to accelerating the issuance of bonds, accommodating an additional CNY 1 trillion in debt for infrastructure and manufacturing projects, underscores the positive outlook for iron ore.

Impacts on ASX 200 Iron Ore Shares

The strengthening iron ore price has delivered substantial gains to various ASX 200 iron ore shares. Notably, the Fortescue Metals Group Ltd (ASX: FMG) share price has surged by an impressive 23% in just one month, reaching two-year highs. Currently trading at $25.62 per share, Fortescue continues to benefit from the upward trajectory in iron ore prices.

Copper Price Surges Amid Expectations

Simultaneously, the copper price has experienced a surge, rising by 0.17% to $3.8065 per pound or US$8,390 per tonne in overnight trading. This marks its highest price in over two months, driven by expectations of heightened demand amid lower inventories.

Factors Influencing Copper's Rise

Inventories at the Shanghai Futures Exchange (SHFE) witnessed a substantial 45% plunge, further contributing to the positive momentum in the copper market. Additionally, evidence of slowing prices in the US has strengthened beliefs that the Federal Reserve will refrain from hiking rates, putting pressure on the dollar used to price copper. China's sustained demand, backed by a pledge to invest CNY 1 trillion in manufacturing and infrastructure development, adds to the favorable outlook for copper.

Supportive Environment for BHP and Rio Tinto

The rising copper price is particularly beneficial for BHP Group Ltd (ASX: BHP), following its acquisition of copper miner Oz Minerals earlier this year. Rio Tinto Ltd (ASX: RIO) has also strategically expanded its copper mining business, capitalizing on the decarbonization trend and the growing demand for copper in electric vehicles, solar energy systems, and wind turbines.

Anticipated Growth and Market Opportunities

This positive market sentiment indicates the potential for substantial growth in both iron ore and copper prices. ASX-listed mining stocks or companies, especially those involved in iron ore and copper, find themselves well-positioned to capitalize on the anticipated market dynamics, presenting lucrative opportunities for investors.