Mining stocks have risen in a struggling market – and it has 2 more tailwinds

It has been 12 months very impressive for the world’s leading miners.

FTSE 350 Mining Index 156995,
– including diverse mining giants Rio Tinto RIO,
BHP Group BHP,
+ 0.35%,
Anglo American AAL,
And Glencore Glen,
– According to the fact cassette,% returned% returned to shareholders in the last year, compared with a decrease of%% of Broader FTSE 350 35050.

The sector is benefiting from the increase in the value of the metals they are looking for. Next month Copper HG100,
+ 0.11%
Futures traded up 62% in the last 12 months, silver S.E. 600,
+ 0.12%
51%, and Platinum PL100 increased,
+ 1.18%
32% added.

And there are two big trends that should accelerate the sector.

The first dealer is a reduction of DXY,
A weaker dollar environment boosts the purchasing power of consumer goods markets, particularly China, Citigroup analyst Ephraim Ravin said. A lower dollar also helps ease the global financial situation, as greenbacks account for much of the world’s corporate debt.

As the chart shows, there is usually a strong correlation between mining sector stocks and changes in the dollar.

Another increase is coming from the increase in copper vs. gold. Citi’s Ravi says the copper-to-gold ratio has risen over the past year, showing optimism about global growth. Copper is required for production and construction, while gold has always been used as a safe haven in financial durables relationships.

Jeffrey Gundlech, chief executive of Doubleline Capital and the so-called bond king, said the amount of copper in gold closely tracks US government bond yields, which tend to grow as the economy recovers.

According to Ned Davis Research, citing figures up to 1995, the European metals and mining industry have an annual gain when the economic outlook is improving. The growth of profit% has left the market behind, but when the economic outlook deteriorates, the annual growth of .4..4%. .

Mark Phillips, a European equity analyst at Ned Davis Research, says it makes sense for miners to go through booms and busts. “Prices will rise when demand for commodities increases while short-term supply is relatively fixed. Elevated prices encourage companies to invest in new projects that have previously been unofficial, Phillips says.

“However, long lead times mean that many companies invest in new projects at the same time, resulting in cost pressures and supply glut, which can come at a time when demand seems to be declining. This causes prices to fall and the costs of metals and mining companies to go up and out of business.

Supercycle talk

Some of the things behind the benefits are talked about by the supercycle. It basically means a cycle that lasts for decades, and moving the whole thing. “The commitment by many countries to take carbon neutral and low energy emissions by 2050-2060 requires significant structural investment that will be commodity intensive. The structural models of commodity pricing have shown that the use of commodities can change at every major stage of economic development: agriculture, industrial, industrial and service, increasing the likelihood of becoming a supercycle in the early stages of growth, “said Daniel Jarrett, chief investment officer at Staty. Capital, which launched the Global Macro Fund last month.

The market debate is inflamed by inflation, weak monetary policy and aggressive fiscal spending. Analysts at research firm Variant Perception have speculated that rising inflation risks, the need to create a hedge for them and “cheaper pay generation” prices could lead to a commodity supersycle. Among the big banks, JPMorgan has also endorsed the Commodity Supersycle View.

She is betting alone against the miners at the moment. According to the Daily Updates of the Financial Conduct Authority, there is no short position against the big miner.

But there are some with dissenting opinions. Ben Davis, an analyst at Liberium Capital, has a sell rating on Rio Tinto, and a hold on BHP. He acknowledges that Daler’s weakness could help keep the boom going, “but the price seems to be the same.” And Davis doesn’t believe things are in the supercycle.

But Davis expects a slowdown in Chinese credit, which will take effect soon. Loan growth has slowed to 12.7% in January from 13.2% in June.

Chinese credit tapping will start to hit demand and the rest of the world is a very powerful force to close again, it is unlikely to stay ahead of the middle of the year. The earliest and biggest gain of this cycle has been iron ore, and for that reason BHP and Rio Tinto have the closest short-term losses in our opinion, ”he says.