Donald Trump's return to the White House will present a "modest net negative" for the mining sector in the near-term, analysts predict, but there are many moving parts to how things could turn out, including potential positives.
This is based on his election campaign promises for more aggressive trade barriers and a slower transition to renewables and electro vehicles, analysts at Jefferies said.
But the analysts acknowledged that, as with most major events, there are many moving parts.
This includes potential positives from an acceleration of onshoring, a potential increase in private sector investments in the US due to lower tax rates, the potential for more aggressive stimulus in China, and general inflation.
The headlines of the Trump victory are "this is bad for China and emerging markets and bad for the energy transition", so ultimately bad for demand for copper, aluminum, iron ore, and other major commodities, further exacerbated by the rally in the dollar and rise in bond yields.
But China could respond with more aggressive 'old school' stimulus measures and Trump could also accelerate potential "reconstruction" in Ukraine, the analysts said, while new geopolitical risks are difficult to forecast.
Onshoring/reshoring in North America and the impact of lower corporate tax rates on fixed asset investment in the US "should be significant offsetting positives", they added.
"What we heard on the campaign may be very different from what ultimately transpires."
Jefferies' base case is that the Trump victory is a "modest and temporary net negative for the global mining sector", with some mining shares expected to lag the broader markets and especially versus the S&P 500 in the near-term.
US steel and mining companies "should benefit" from lower tax rates and outperform peers in other regions - "but this sector overall depends on an acceleration of demand for the shares to outperform. That acceleration is coming, in our view."
In a world of 2%-plus global GDP growth, the Jefferies team would expect key commodity markets to "shift into growing deficits, which should lead to higher prices over time", with rising inflation a potential tailwind for commodities as well.
China is a wild card, with a more aggressive stimulus being one possible response, but the analysts do see an acceleration of Chinese demand as likely, rather than commodities such as copper, aluminum and PLV metallurgial coal are expected to be gradual.
Top picks for the broker are Glencore PLC (LSE:GLEN), Alcoa (NYSE:AA), Freeport-McMoRan Inc (NYSE:FCX, ETR:FPMB), Teck Resources Ltd (TSX:TCK) and Vale SA (ADR) (NYSE:VALE). The US steel sector "has the potential for strong performance as well".
Jefferies is less positive on BHP Group Ltd (LSE:BHP, ASX:BHP) (due to high capex, low cash flow) and Antofagasta PLC (LSE:ANTO) (high capex, low cash flow, high valuation).