Joseph Taylor: Pretty much everything in the commodities world has rallied since China announced some stimulus. What are your thoughts on this?

Jon Mills: The Chinese economy has been struggling and they had been looking unlikely to achieve their 5% GDP growth target. So, the central government has finally acted, at least through The People's Bank of China, and they've tried to stimulate the economy and also support their struggling residential property sector. So, it is bullish for near-term growth.

“We’re less bullish over long-term iron ore demand and hence prices”

Taylor: China is obviously a huge customer for any iron ore miner out there. And yet we don't think the major iron ore miners look cheap at the moment. Can you expand on that a little bit?

Mills: Look, China accounts about three-quarters of the seaborne iron ore trade. Even before the recent increase in prices to around about US$110 a ton the last time I looked, prices were still pretty elevated around $90 a ton, which is far above cost support. So, all the miners whether it's BHP, Rio, Fortescue, they're all making decent profits. And so that's why we didn't think they're cheap. We think they're less cheap now. And the main reason is we're less bullish over long-term iron ore demand and hence prices. We have a long-term iron ore price of around US$70 a ton, which is obviously too below current prices.

“Sooner or later, we think the Chinese economy is going to move away from one that's previously been based on fixed asset investment to one based more on consumption.”

Taylor: Where does that more bearish forecast come from in terms of demand for China?

Mills: It’s a combination of two things. At the moment, China produces more than half of world's steel. And we just think that the Chinese economy is finally, sooner or later, going to move away from one that's previously been based on fixed asset investment, so infrastructure, residential property, to one that's more based on consumption, which inherently reduces the amount of steel and hence iron ore demand that the economy will need. The other thing we're starting to see, for the first time in about a decade, are material supply increases. Particularly from the low-cost producers. And if you combine those two things, that implies a lower long-term price than current spot prices.

Taylor: As well as iron ore, China are also a big part of the conversation when it comes to copper. But in recent years, we've also had tailwinds from things like the EV transition. What's your view on copper miners at the moment?

Mills: So like most commodities, China is a bigger source of demand. I mean, it accounts for about more than half of refined copper demand. Again, the movement in the economy to a more consumption-based is bearish for Chinese copper demand. We do see EVs and renewables and investment in the grid being an incremental source of demand. But longer term, I mean, whatever the potential supply issues in the near term, which is why everyone is so bullish, or one of the reasons everyone is so bullish, [should lessen]. I mean, it's a commodity. And over the longer term, the miners led by BHP and Rio will increase copper supply and that should solve any near-term undersupply.

“The best time to invest in any commodity is when that commodity is in a down cycle.”

Taylor: Taking that kind of longer-term view to the sector as a whole, how can long-term-minded investors benefit from commodity exposure and how can they go about it?

Mills: I think – I mean, you mentioned iron ore earlier. I mean, I think the best time to invest in any commodity is when that commodity is in a down cycle. So, you could have 50%, 60% of the cost curve losing money at that current spot prices. So, a good example now would be lithium or nickel, which are both after having booms they've now come all the way back. And a lot of the miners are struggling. And so, to take lithium, we have a number of lithium miners led by IGO and MinRes, which are undervalued. And so, we think the best time to invest is not when everyone is bullish. It's when everyone is bearish.

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