JPMorgan raises long-term iron ore price to $90/t and continues to prefer BHP and RIO
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JPMorgan raises long-term iron ore price to $90/t and continues to prefer BHP and RIO
The report argues that the iron ore cost curve is shifting upward due to inflation, declining grade, and resilient Chinese steel output, while the Shanxi coal mine accident represents a genuine metallurgical coal supply shock, with the impact intensity determined by duration and coal quality.
- The long-term real iron ore price assumption is raised from $80/t to $90/t, while near-term prices are also raised by about $5/t due to higher diesel, explosives, and freight costs stemming from the Middle East conflict.
- BHP and RIO valuations are raised by about 10% and 12%, respectively, with Overweight maintained; FMG valuation is raised by about 18% to $24/share, but the rating remains Neutral.
- The Shanxi Qinyuan Lishuyuan coal mine accident led to regional safety inspections and production suspensions, with estimated impact on raw coking coal supply of about 288kt/day; if the affected tonnage is close to PLV quality, it would be more significant for the seaborne metallurgical coal market.
- The report distinguishes the impact on metallurgical coal versus thermal coal: the steel market has improved over the past 4 to 6 weeks, but thermal coal spot cargoes remain weak, with ample inventories in Japan and Taiwan.
- The rise in iron ore prices is attributed to cost-side drivers rather than being driven solely by improvement in Chinese steel output or seaborne supply-demand fundamentals.
Report interpretation
Overview
This report is the mining daily from JPMorgan's Australian Metals & Mining team, focused on the upward revision to iron ore price assumptions, the potential impact of the Shanxi coal mine accident in China on metallurgical coal, and the valuations and ratings of Australian mining stocks. The report also reviews signals across iron ore, steel, coal, gold, copper, aluminium, lithium, and uranium.
Core views
The core view is that the iron ore price center should move higher: JPMorgan raises its long-term real iron ore price from $80/t to $90/t, and lifts its near-term 2026/2027 iron ore price forecasts to about $105/t and $99/t. The drivers include industry cost inflation, higher unit Fe costs caused by lower average product quality, less-than-expected flattening of the cost curve from Simandou, and Chinese steel output staying high for longer. On equities, BHP and RIO remain the top picks, while FMG, despite the largest valuation upgrade, lacks further catalysts.
Analysis framework
The report uses commodity price assumption revisions, cost curve analysis, steel supply-demand tracking, port inventory observation, scenario analysis of supply shocks from mining accidents, and valuation sensitivity comparisons across mining companies. For coal, it focuses on distinguishing the coal quality of affected tonnage and the duration of production suspensions; for iron ore, it focuses on comparing marginal mine FOB costs, freight rates, steel output, imports, and changes in port inventories.
Methodology notes
Upward revision to long-term iron ore price assumptions
The report argues that rising input costs such as diesel, explosives, and freight, as well as higher unit Fe costs caused by declining ore grades, will lift marginal supply costs and thus support higher long-term iron ore prices.
Impact of Chinese metallurgical coal production suspensions
The report breaks down the post-accident supply shock into two key variables: coal quality and duration. If the affected coal is high-quality metallurgical coal such as PLV and the suspension lasts 2 to 3 months, market tightness would rise meaningfully; if the impact is only short-term or on lower-grade coal, price transmission would be weaker.
Relative preference for BHP, RIO, and FMG
The report evaluates mining stocks based on factors including iron ore price assumptions, EV/EBITDA, P/NPV, copper growth pipeline, and aluminium price optionality, concluding that BHP and RIO valuations are not yet overly stretched, while FMG's valuation has been revised up but lacks upside catalysts.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Iron OreCore commodity price assumption raised
- Strengths
- The long-term real price is raised to $90/t, and near-term prices are also revised up due to the upward shift in the cost curve.
- Weaknesses
- China steel output was soft earlier in the year, and seaborne supply has improved, so demand is not the sole support for a strong price increase.
- Comparison
- Compared with the previous long-term price assumption of $80/t, the report shifts to a higher long-term price center.
- Risks
- If China steel output is below expectations, Simandou's supply impact is greater than expected, or cost pressures ease, the price assumptions may be revised down.
- BHPOne of the top mining stock picks
- Strengths
- Overweight is maintained, valuation is raised by about 10%, and its copper growth pipeline and earnings leverage may attract marginal investors.
- Weaknesses
- The share price has already risen about 32% year to date, requiring continued fundamental validation.
- Comparison
- Compared with RIO, the report says it prefers BHP; compared with FMG, BHP has broader growth and earnings drivers.
- Risks
- Falling iron ore prices, copper project execution risk, cost inflation, and weaker macro demand.
- RIOOne of the top mining stock picks
- Strengths
- Overweight is maintained, valuation is raised by about 12%, and if Middle East-related disruptions further tighten the aluminium market, RIO has aluminium price optionality.
- Weaknesses
- The share price is up about 27% year to date, and after valuation re-rating it needs continued commodity price support.
- Comparison
- Alongside BHP it is a preferred pick, but the report leans more toward BHP; compared with FMG, its business is more diversified.
- Risks
- Falling iron ore prices, easing aluminium market disruptions, cost pressures, and slowing China demand.
- FMGValuation raised but rating remains Neutral
- Strengths
- The valuation increase is the largest, at about +18% to $24/share.
- Weaknesses
- The report argues that the direction of iron ore is the key catalyst, but under the base-case forecast there is limited further upside and medium-term earnings are relatively flat.
- Comparison
- Compared with BHP and RIO, FMG is more concentrated in iron ore exposure and has more singular catalysts.
- Risks
- If iron ore prices do not continue to rise, valuation recovery may not translate into a rating upgrade.
- Metallurgical CoalPotentially tight category affected by the China coal mine accident
- Strengths
- If the affected supply is PLV-grade and production suspensions last 2 to 3 months, SSCC/SHCC prices could be pushed higher.
- Weaknesses
- The impact of the accident depends on coal quality and the duration of suspensions; short-term suspensions may be absorbed by the market.
- Comparison
- The report explicitly states that the transmission target is metallurgical coal, not thermal coal.
- Risks
- If the suspension period is short, the affected coal quality is lower, or policy does not tighten further, the price impact will be limited.
- Thermal CoalThe report sees limited transmission from the accident
- Strengths
- No obvious positive catalyst is emphasized.
- Weaknesses
- Spot thermal coal remains weak, with 6000kcal spot trading at about a US$7-9/t discount to GC Newcastle, while inventories in Japan and Taiwan are ample.
- Comparison
- Compared with metallurgical coal, thermal coal is not the main beneficiary direction from this coal mine accident.
- Risks
- If demand or weather changes exceed expectations, thermal coal prices could still fluctuate.
- Gold EquitiesPrecious metals sector under observation
- Strengths
- Gold rose 1.4% overnight.
- Weaknesses
- The research library entry mentions that gold stocks continue to face valuation markdown pressure on a market-cap basis.
- Comparison
- Lithium and copper are described as still leading.
- Risks
- Gold prices, costs, exchange rates, and earnings forecast revisions may affect gold miners' performance.
- Uranium EquitiesSupport emerges after valuation correction
- Strengths
- The research library entry mentions that the uranium sector has valuation support after a pullback, and PDN and DYL were upgraded to Overweight.
- Weaknesses
- Some newly covered companies still face execution risk or elevated valuation issues.
- Comparison
- Bannerman Energy and Paladin Energy are listed as Overweight, Deep Yellow and Boss Energy as Neutral, and Lotus Resources as Underweight.
- Risks
- Project execution, financing, valuation, uranium price, and regulatory risks.
Key data
- Overnight iron ore price change+0.5%The headline summary discloses an increase in iron ore prices.
- Overnight gold price change+1.4%The headline summary discloses an increase in gold prices.
- Long-term real iron ore price assumption$90/tRaised from the previous $80/t to $90/t.
- Near-term iron ore price forecast$105/t / $99/tThe report's 2026/2027 iron ore price forecasts.
- Estimated impact of the China coal mine accident~288kt/day raw coking coal supplyEstimated impact from regional safety inspections and production suspensions cited by Mysteel/Reuters.
- Global seaborne metallurgical coal market size~1Mt/dayUsed as a reference benchmark to assess the impact of the China coal mine accident.
- Change in China steel output from the start of the year to April-4.1% YTDThe report says performance was soft earlier in the year, but April annualized output was close to 1 billion tons.
- Increase in China iron ore importsclose to +30Mt YTDMost of the increase went into port inventories, which later showed signs of decline.
- BHP and RIO valuation increase+10% / +12%Overweight maintained, with the report preferring BHP.
- FMG valuation increase+18% to $24/shareRating remains Neutral.
Impact & implications
In terms of investment implications, the report reinforces the relative advantage of large Australian mining stocks, especially BHP and RIO, which benefit from a higher iron ore price center, copper growth pipeline, or aluminium price optionality. On the commodity side, the upward revision to iron ore prices mainly comes from the cost side rather than a material improvement in demand; metallurgical coal faces event-driven upside risk, but whether tightness becomes sustained depends on the duration of production suspensions and the coal grades affected. FMG is more sensitive to the direction of iron ore, but under the report's base-case scenario it lacks further upside momentum.
Risks
- If China steel demand and output are below expectations, the logic for higher iron ore prices may weaken.
- If Simandou's new supply impacts the market more than expected, it may flatten the cost curve and suppress long-term prices.
- If Middle East conflict-related cost pressures ease, the near-term price uplift driven by diesel, explosives, and freight may reverse.
- If the Shanxi coal mine accident is short-lived or involves lower-grade coal, the actual transmission to metallurgical coal prices may be limited.
- FMG is highly sensitive to the direction of iron ore; if iron ore does not rise further, the valuation increase may lack a catalyst.
- Mining companies face risks from cost inflation, project execution, exchange rates, regulation, and commodity price volatility.
What to watch
- Whether China steel output can remain close to a 1 billion ton annualized level.
- Whether China iron ore port inventories continue to fall from elevated levels.
- The duration of safety inspections and production suspensions after the Shanxi coal mine accident, and whether the affected coal is PLV or high-grade hard coking coal.
- Whether cost variables such as diesel, explosives, and seaborne freight continue to support marginal mine costs.
- The subsequent realization of BHP's copper growth pipeline, RIO's aluminium price optionality, and FMG's iron ore price sensitivity.
- The impact of Middle East conflict on energy, freight, aluminium smelting, and mining costs.