Jefferies is optimistic about the future upside potential of metals and mining stocks

Investing.com - Jefferies analyst Christopher LaFemina stated in a report on Monday that as geopolitical risks, inflation pressures, and demand for physical assets intensify following the outbreak of war in Iran, metal and mining stocks will continue to outperform the broader market.

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Jefferies said that the company’s long-standing view is that the sector’s six-month rally reflects “rising geopolitical risks, structural weakness of the dollar, and inflation risks.”

The company added that weekend developments are “obviously very unfortunate but fundamentally positive for the sector.”

LaFemina explained that the closure of the Strait of Hormuz would impact critical supply chains, noting that “about 9% of global aluminum production depends on the Gulf countries reliant on this route,” while Iran itself accounts for “about 3% of global iron ore production.”

Jefferies warned that the conflict also poses indirect risks through “rising energy prices leading to higher and steeper cost curves,” supply chain pressures, and potential stockpiling of key minerals like copper.

Inflation dynamics support a bullish outlook. Jefferies pointed out that commodities “often provide effective inflation hedges,” especially if central banks need to increase money supply to support governments amid prolonged conflicts.

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

Jefferies reaffirmed a positive stance on the sector, focusing on Freeport-McMoRan, Glencore, BHP, and Alcoa, but added that they expect “all stocks to benefit as the tide rises.”

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