City broker Liberum expects demands for metals to pick up in the coming few months, but said it is still “cautious” on the mining sector as it is forecasting a rise in supply.
Though demand is set to pick up in the coming quarter, so too will supply.
China – the biggest consumer of raw materials – has remained strong and commodity prices are solid, but Anglo American PLC (LON:AAL) and Rio Tinto PLC (LON:RIO) are 10% below last month’s highs.
Liberum expects this downtrend to carry on as supply and demand continue to cancel out each other’s gains.
In fact, analyst Richard Knights estimates there is still a 60mln tonne oversupply of iron ore in the market currently despite increasing demand, which will weigh on the prices of the metal going forward.
"In this market we continue to prefer base [metals] over bulk [metals]," said Knights.
“Although we see an impending pickup in demand, the two main earnings drivers of the sector, iron ore and coal, will also experience a strong acceleration in supply in the second quarter which should be more significant for pricing," he added.
He isn’t too bullish on any of the big miners either. Glencore PLC (LON:GLEN) is his “preferred exposure” although he only has that as a ‘hold’.
The analyst has Anglo American, BHP Billiton plc (LON:BLT) and Rio Tinto all as a 'sell'.
There was a hint of positivity though, with Knights stating: “If anything [we] have become more constructive on the demand outlook for the next quarter”.