Large-cap ASX mining shares are outperforming again today, with the resources sector a key reason why the S&P/ASX 200 Index (ASX: XJO) has also outperformed over the past several weeks.
But some may be wondering if ASX 200 mining shares can keep delivering the goods next month after their strong run.
Some experts believe they can. In fact, they claim we may be only at the start of a significant earnings upgrade cycle, according to the Australian Financial Review.
Bright outlook for ASX 200 mining shares
Analysts have been slow to lift their commodity price assumptions even as metals and energy prices have soared.
The war in Ukraine and ongoing bottlenecks caused by the COVID-19 pandemic appear to be forcing prices higher.
The gap between consensus forecasts and spot prices have widened further this quarter. This gap is likely to remain large given the prices commodities are fetching in the futures market.
Playing catch-up to rallying prices
The AFR noted that this could trigger large upgrades for ASX 200 mining shares and energy shares.
Ben Cleary, portfolio manager of the Tribeca Natural Resources Fund, told the publication:
The quarterly earnings and forecast revision cycle usually comes out around this time and analysts are only just playing catch up now.
They probably started the year too bearish on commodity prices anyway and the prices are going to have to be upgraded.
And just in case you were wondering, this situation where analysts are rushing to play catch up is not uncommon. If anything, analysts have a history of being slow to lift forecasts when volatile commodities rally.
Morgan Stanley is one that is moving to close the gap. It upped its zinc forecast by a whopping 48% to US$1.72 a pound, reported the AFR.
Commodities with large upgrades
It also increased its nickel estimates by 19% to US$12.48 a pound and iron ore by 9% to US$155 a tonne.
For iron ore, this brings the broker a lot closer to spot price than many of its peers, who have pencilled in a price of less than US$100 a tonne for 2022.
The upgrades for energy-related commodities are even larger for Morgan Stanley. Its forecast for lithium carbonate is now 225% higher at US$46,000 a tonne, while thermal coal is upgraded by 96% to US$255 a tonne.
Good news for miners
As other analysts follow Morgan Stanley's move, we can potentially see a big valuation lift for several ASX 200 mining shares.
That's good news for the share prices of ASX iron ore miners including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), as well as the major lithium players.
