European mining valuations are already at +1SD highs, while stagflation and cost inflation risks are not fully priced in

Overview

This report focuses on the EMEA metals and mining sector. Its core view is that mining equities have already substantially priced in easing tensions in the Middle East, the reopening of the Strait of Hormuz, and expectations for higher commodity prices, while the combination of valuation, cost, and macro risks is deteriorating. JPMorgan acknowledges that its earlier bearish view on copper prices and mining equities has not played out, and it raises some 2026/27 commodity price assumptions, but believes current valuations are now close to or above fair value and lack sufficient risk premium for stagflation and earnings downgrade risk.

Core views

The report maintains a strategy of reducing exposure to European metals and mining. In the short term, peace or the reopening of the strait could continue to drive risk-on upside in metal prices and mining equities; however, the sector has already risen more than 20% from the March 20 low and about 125%-130% since Liberation Day, with most miners trading at historically high valuations. JPMorgan believes the most overlooked risk is a stagflation scenario: high energy prices push up costs, inflation leads to tighter policy, global growth slows, and industrial metal prices and miner earnings are ultimately pressured. The relatively preferred areas are aluminium and gold, with Norsk Hydro supported by constrained aluminium supply and gold miners supported by rising gold prices and lower valuations.

Analysis framework

The report uses a combination of macro scenarios, commodity price forecasts, historical analogies to oil price shocks, valuation multiples, fair value, and cost inflation analysis. Scenarios include the JPM base case, an extreme bull case with spot prices permanently sustained, a peace scenario, and a downside stagflation/oil-shock scenario. Valuation analysis focuses on deviations in EV/EBITDA versus 10+ year historical averages, prior cycle peak multiples, and JPM fair value.

Methodology notes

• Macro scenario analysisComparison of reflation and stagflation scenarios

  Compare the impact of peace/reopening, spot-price continuation, the JPM base case, and a stagflation downside scenario on metal prices, earnings, and valuations.

  The report argues that the market has already fully reflected the reflation and strait-reopening scenarios, but has inadequately priced the stagflation path of high oil prices, rising costs, monetary tightening, and slowing growth.

• Valuation analysisEV/EBITDA and fair value sensitivity

  Use historical multiples, target multiples, and different commodity price assumptions to assess whether mining equities are overvalued.

  Most miners are already close to or above fair value under the JPM base case, and EV/EBITDA is above the 10-year average +1SD, with some companies above the peak multiples seen at the ends of previous cycles.

• Historical analogyCopper price path after oil supply shocks

  Review copper price performance during the 1973, 1979, 1990, and 2022 oil supply shocks.

  The report finds that copper prices typically rise in the first 3-6 months of a shock due to inflation trades, but then fall by more than 15% as policy tightens and growth slows.

• Cost analysisMining input cost inflation assessment

  Assess the impact of higher diesel, sulfuric acid, explosives, ammonia, and shipping prices on copper, iron ore, and coal costs.

  The report estimates mining cost inflation at around 5%-10%, which may gradually show up in H1'26 results and 2026/27 earnings.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• European metals and mining equities

  Core research target

  Strengths

  Supported by higher metal prices, supply shocks, reflation trades, and structural demand.

  Weaknesses

  Valuations are already elevated, cost inflation is rising, and there is lagged downside risk to earnings revisions.

  Comparison

  Compared with historical cycles, current multiples for most miners are above 10+ year averages and the peak multiples at the ends of prior cycles.

  Risks

  Stagflation, copper price pullback, high energy costs, slowing global growth, and cooling Chinese demand.

• Copper

  Key commodity price variable

  Strengths

  Prices are supported by Chinese demand, US Comex import demand, and risks of supply-chain disruption in the Middle East.

  Weaknesses

  The pace of destocking in China has slowed recently, and copper prices tend to pull back after historical oil price shocks.

  Comparison

  JPM base case is about $13,000/t in 2026, downside scenario is $10,500/t, and peace scenario is $15,000/t.

  Risks

  Monetary tightening, demand destruction, inventory rebuilding, and rising mining costs.

• Iron ore

  Earnings and valuation-sensitive variable

  Strengths

  Price assumptions have been raised, and spot prices have recently risen about 7%.

  Weaknesses

  Shipping and energy costs erode exporters' margins.

  Comparison

  2026/27E assumptions are $105/$99 per ton, with a downside scenario of $90/t.

  Risks

  Slowing global growth, rising costs, higher freight rates, and weak demand.

• Aluminium and Norsk Hydro

  Relatively preferred asset

  Strengths

  Around 3Mtpa of aluminium supply curtailments in the Middle East, a petroleum coke shortage, and an approximately 2Mt aluminium deficit in 2026 support prices; Norsk Hydro has about 20% upside.

  Weaknesses

  Still affected by energy prices and the macro cycle.

  Comparison

  Norsk Hydro is the only Overweight within the report's industrial metals coverage.

  Risks

  Supply recovers faster than expected, energy costs continue rising, or demand weakens.

• Gold miners

  Relatively preferred asset

  Strengths

  JPM expects gold prices to rise above $6,000/oz by end-2026, while gold miners have cheap valuations and strong cash return potential.

  Weaknesses

  Higher interest rate expectations have recently weighed on short-term momentum.

  Comparison

  AngloGold and Fresnillo are listed as the top EMEA gold miner picks.

  Risks

  Higher real rates, gold prices underperforming expectations, and cost inflation.

Key data

• MSCI Europe M&M increaseMore than 20% since March 20; about 125%-130% since Liberation DayThe report believes this rise already reflects expectations for the reopening of the strait and reflation.
• Valuation levelEV/EBITDA for multiple miners is above the 10-year average +1SD, and the sector has rerated more than 50% over the past 12 monthsSome companies are valued above the peak multiples seen at cycle ends such as 2008, 2014, and 2020.
• JPM 2026 copper base caseAbout $13,000/tReverted from the previous $9,500/t assumption to the JPM Commodities Research forecast.
• Stagflation downside copper price scenario$10,500/tUsed to estimate valuation pressure under an oil shock and slower growth.
• Iron ore price assumptions2026/27E at $105/$99 per ton; peace scenario at $100/t; downside scenario at $90/tThe report also raises its iron ore price forecasts.
• Mining cost inflationAbout 5%-10%Driven by diesel, sulfuric acid, explosives, shipping, and energy-related consumables.
• EBITDA margin compressionAbout 5%-10%The report estimates 2026E mining EBITDA margins face compression.
• Norsk Hydro upsideAbout 20%The report calls it the only Overweight in industrial metals, with a target price of Nkr137.00.
• Gold price forecastAbove $6,000/oz by end-2026Forecast by JPM Commodities Research, supporting the bullish view on gold miners.
• Copper price risk after historical oil shocksSubsequent decline of more than 15%Samples from the 1973, 1979, 1990, and 2022 supply shocks show an initial rise followed by a pullback.

Impact & implications

For investors, the risk-reward in European mining equities is no longer attractive: a short-term peace scenario may bring further risk-on upside, but valuations have already partly exhausted that upside; if energy prices stay high, cost inflation feeds through with a lag, global growth weakens, or Chinese demand slows, both 2026/27 earnings and valuations could come under pressure. Portfolio-wise, investors should reduce broad mining exposure and prioritize aluminium and gold, where supply constraints are stronger, valuations are more reasonable, or cash returns are clearer.

Risks

• The Strait of Hormuz or conflict in the Middle East could keep energy and supply chains under sustained stress.
• High oil prices could continue to drive up diesel, sulfuric acid, explosives, and shipping costs.
• Slowing global growth and tighter monetary policy could suppress demand for industrial metals.
• A slowdown in destocking of copper consumption in China could weaken support for copper prices.
• Current high valuations in mining equities create greater downside share price elasticity in a bearish scenario.
• 2026/27 cost and earnings downgrades may become concentrated during the H1'26 reporting season.

What to watch

• Whether the Strait of Hormuz reopens around June 1 and whether energy markets truly normalize.
• Whether Brent oil prices stay around $100/bbl in H2'26.
• The pace of copper inventory drawdown or restocking in China, especially weekly inventory changes after the Lunar New Year.
• H1'26 cost guidance from miners and 2026/27 earnings revisions.
• Price trends in diesel, sulfuric acid, ammonia, explosives, and shipping.
• Whether copper prices stay above $13,000/t or fall back toward the $10,500/t stagflation scenario.
• Whether valuation and cash return delivery materialize for relatively preferred names such as Norsk Hydro, AngloGold, and Fresnillo.