The ASX materials sector has powered to record highs, driven by soaring copper and gold prices and renewed China stimulus hopes. With mining stocks outperforming the broader market, investors are now questioning whether this rally still has legs or if valuations have run too far, too fast.
The ASX materials sector has surged 45% since July 2025, dramatically outpacing the broader ASX 200's modest 3.3% gain over the same period. The financials sector has declined 2.8% during this time, highlighting a sharp rotation into resources. With multiple miners hitting all-time highs, investors are asking whether this rally has further to run or if valuations have stretched too far.
Several forces have converged to propel ASX mining stocks to these levels.
Copper's structural supercycle has been the standout. LME copper prices briefly exceeded US$13,000 per tonne in early January, a record high fuelled by supply disruptions in Chile and Indonesia alongside surging demand from electric vehicles, data centres, and grid upgrades. JPMorgan forecasts copper averaging US$12,075/mt through 2026, with a global deficit of approximately 330,000 tonnes expected.
Gold's safe-haven appeal has intensified amid geopolitical tensions. Spot gold hit US$4,888 per ounce this week, up over 60% in twelve months. HSBC sees potential for US$5,000 in the first half of 2026 as investors seek shelter from policy uncertainty.
Iron ore resilience has surprised many. Despite forecasts of sub-US$100 pricing, the steelmaking input has held above US$103/tonne, supported by Chinese restocking ahead of Lunar New Year. China recorded record iron ore imports in December, though steel production fell 4% in 2025.
China stimulus expectations have lifted sentiment. Beijing's commitment to rate cuts in 2026 has prompted investors to anticipate improved industrial activity.
Currency tailwinds are boosting earnings. The weaker USD environment supports commodity prices, while the Australian dollar has strengthened to around US$0.68.
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The rally has lifted both diversified giants and pure-play producers.
BHP Group (ASX:BHP) touched a two-year high near A$48 in mid-January, supported by record iron ore production and expanding copper exposure. The company recently announced a collaboration with Rio Tinto to mine up to 200 million tonnes at neighbouring Pilbara operations.
Rio Tinto (ASX:RIO) similarly reached record territory above A$149, with its Q4 2025 results showing 89.7 million tonnes of iron ore production and initial exports from the Simandou project in Guinea.
Sandfire Resources (ASX:SFR) has been the copper story of the year. Shares have risen by over 100% in the past twelve months to around A$19, driven by strong cash flows from its MATSA operations in Spain and the Motheo mine in Botswana.
South32 (ASX:S32) and Mineral Resources (ASX:MIN) have also reached 52-week highs, with South32 benefiting from silver and zinc exposure while Mineral Resources rides the lithium rebound.
Not all signals are green. The materials sector now trades at a price-to-earnings ratio of 23.5x, well above its three-year average of 17.4x. This elevated valuation leaves limited margin for error.
Iron ore faces headwinds from Guinea's Simandou project ramping up to potentially 120 million tonnes annually. Consensus forecasts suggest prices could fall below US$100/tonne in the second half of 2026 as supply outpaces demand. China's property sector remains weak, with new home prices declining for over a year.
Sharp reversals are possible. The sector's 8.5% gain in January alone has been driven partly by momentum, and any disappointment in Chinese data or commodity prices could trigger rapid profit-taking.
That said, structural demand from decarbonisation and electrification appears genuine. Copper's role in EVs, renewable energy, and data centres creates demand that mining supply has struggled to match.
The materials sector rally has fundamental support, but the easy gains may be behind us. Investors would be wise to distinguish between companies benefiting from genuine supply constraints and those simply riding the commodity tide.
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