For the world’s leading miners, this has been an impressive 12 months.
FTSE 350 Mining Index 156995,
Including diversified mining giant Rio Tinto RIO,
BHP Billiton Group BHP Billiton,
British American Airlines AAL,
And Glencore GLEN,
According to FactSet, in the past year, the company has returned 46% of its stock to shareholders, while the broader FTSE 350 has fallen by 7%.
The industry has benefited from the soaring value of the metals it unearthed. Near Moon Copper HG00
In the past 12 months, silver SI00 futures have risen 62%.
Rose 51%, platinum PL00
An increase of 32%.
There are two major trends that will further promote the development of this field.
The first is the fall of the dollar DXY,
Citigroup analyst Ephrem Ravi pointed out that the weak dollar environment has increased the purchasing power of major consumer markets, especially China. The depreciation of the U.S. dollar also helps ease global currency conditions, as many corporate debts around the world are denominated in U.S. dollars.
As shown in the figure, there is usually a strong correlation between the stocks in the mining sector and the dollar exchange rate.
The rise in copper and gold is another driving force. Citibank’s Ravi said the copper-to-gold ratio has been rising over the past year, which implies optimism about global growth. Copper is necessary for manufacturing and construction, while gold is often used as a safe haven from financial coercion.
Jeffrey Gundlach, CEO of DoubleLine Capital and the so-called bond king, said that the ratio of copper to gold is closely related to the yield of US government bonds, which tends to rise as the economy improves.
According to Ned Davis Research (Ned Davis Research), its data can be traced back to 1995, when the economic outlook improved, the average annual growth rate of the European metals and mining industry was 9.7%, and when the economic outlook deteriorated , Its average annual growth rate is 7.4%. .
Mark Phillips, a European equity analyst at Ned Davis Research, said it makes sense for miners to experience prosperity and depression. “Increasing commodity demand will push up prices, while short-term supply will remain relatively fixed, and prosperity will begin. As prices continue to rise, this encourages companies to invest in new projects that were previously uneconomic.” Phillips said.
“However, longer delivery times usually mean that many companies are investing in new projects at the same time, leading to cost pressures and oversupply, which may occur when demand begins to weaken. This leads to price declines, metals and mining companies The cost curve rises and goes bankrupt.” He added.
Super cycle talk
Behind the increase are some commodities super-cycle speeches. Fundamentally, this means a cycle that lasts for decades, and the entire commodity is moving. “Many countries will need to achieve carbon neutrality and low energy consumption by 2050-2060, which will require a large amount of infrastructure investment, which will be commodity-intensive. The structural model of commodity prices shows that in every major economic development Phase: Agriculture, industry and services, and the use of commodities will all change, which increases the possibility of a super cycle in the early stages of development,” Stategy Chief Investment Officer Daniel Jerrett said. Capital, established a global macro fund last month.
Driven by loose monetary policy and aggressive fiscal spending, the market talks about inflation. Analysts at the research firm Variant Perception believe that the increase in inflation risks, the need to hedge risks, and “cheap generations” prices will lead to commodity super cycles. Among the major banks, JP Morgan Chase also endorsed the view of the commodity super cycle.
Currently, this is a lone bet on miners. According to daily updates from the Financial Conduct Authority, there are no short positions for large miners enough to report.
However, some people hold different opinions. Liberum Capital analyst Ben Davis gave Rio Tinto a sell rating and held BHP Billiton (BHP). He admitted that a weak dollar can help the rebound continue, “but I feel that prices have risen a lot.” Davis does not believe that commodities are in a super cycle.
But Davis expects that the slowdown in Chinese credit will soon have an impact. Loan growth has fallen from 13.2% in June to 12.7% in January.
“The impact of China’s credit reduction will begin to be felt in the demand for commodities. Although inventory replenishment in other parts of the world is a very powerful force, it is unlikely to continue until the middle of this year. Ore, therefore, BHP Billiton and Rio Tinto are in our view the most unfavorable factors in the near future.”