Market Outlook on Mining Sector

Investing.com — Morgan Stanley anticipates elevated volatility in the mining sector until 2025, especially in the first half. This outlook arises due to global growth headwinds and the uncertain economic policies in both China and the United States.

The brokerage has downgraded Vale SA ADR (NYSE: VALE) to "equal weight," highlighting the iron ore miner's underperformance compared to its peers. This is noted despite recent positive developments, such as the appointment of a new CEO and agreements aimed at resolving legacy issues. However, iron ore supply surpluses and unpredictable pricing are projected to negatively impact the stock in the short term.

On the other hand, Morgan Stanley has upgraded Southern Copper Corporation (NYSE: SCCO) and Nexa Resources SA (NYSE: NEXA) to "equal weight," based on tighter supply forecasts for base metals, specifically copper and zinc.

Despite a near 12% pullback in Southern Copper's stock from its recent peak, the risk-reward balance appears favorable, even with ongoing political concerns in Mexico.

Morgan Stanley continues to favor base metal equities over iron ore stocks, citing supply deficits in copper, aluminum, and zinc. Additionally, potential catalysts such as aluminum producer Alcoa (NYSE: AA) have been highlighted, being named Morgan Stanley's "top pick" due to hopeful self-help initiatives and potential upside to consensus estimates.