Indicators for China's economic strength have been weak and central bank efforts to boost spending are getting less effective, analyst Christopher LaFemina said, and metals demand will fall as a result.
"Broad credit growth in China has been on a declining trend since 2017 … credit growth tends to lead economic activity by 3-6 months, and credit growth is unlikely to accelerate until more aggressive stimulus is put in place," he said.
"As a result, we expect Chinese demand for metals to weaken through the first half of 2019, but we also expect some stimulus to lead to a gradual recovery in demand later this year."
London FTSE 100 miners have had a poor start to 2019 after Chinese manufacturing data showed more evidence of a slowdown, although BHP, Rio Tinto and Antofagasta have managed to wind back most of the losses from Wednesday.
Glencore fell 5% on the first day of trading for the year and has stayed down.
Valuations won't climb much in the coming months without a change in policy from Beijing and Washington, LaFemina said.
"While mining equity valuations are notably inexpensive (on average, Rio Tinto, BHP, Vale, Glencore and Anglo American are on a 2019E enterprise value/EBITDA of 4.1x, a price/earnings of 8.4x and a FCF yield of 10.8% at current spot prices) and bulk commodity prices (iron ore, met coal, thermal coal) have been resilient despite the macro issues, a positive catalyst is needed to drive these share prices higher, in our view," he said.
"A trade deal between the US and China could be the catalyst the sector needs."
The big diversified miners would be protected from major falls by their capital returns, the Jefferies analyst said, but single-commodity companies would not be so lucky in the first half.
"For the more leveraged pure-play miners such as Freeport, First Quantum and Antofagasta, share prices are likely to be more volatile and more vulnerable in the very short term," he said.
"However, we expect these share prices to all recover over the course of the year and to move significantly higher into 2020."
