|By Reuben Gregg Brewer:
January was a solid month for gigantic diversified miners Vale SA, Rio Tinto and BHP Billiton. Investors watched this trio, each of which has a heavy focus on iron ore, advance by 26%, nearly 15%, and roughly 12%, respectively. That continued the trend from 2016, when Rio and BHP advanced 32% and nearly 39%, respectively, and Vale rocketed a massive 130%.
There was a lot going on in January. The first thing to look at for the trio was the rising price of iron ore, which is a huge contributor to the top and bottom lines of all three of these miners. So the 3.6% monthly rise in that metal's price was helpful. But there was more going on than just that, with strength throughout the commodity market. For example, copper, another key product for each, was up around 8% in January.
So supportive commodity markets were an important element in in the January advances of Vale, Rio Tinto, and BHP. But last month was about more than just commodity prices. For example, Vale and BHP took an important step forward in clearing up the uncertainty surrounding the Samarco Mine disaster. And Rio Tinto managed to offload some Australian coal assets. These were big, important moves, too.
Gigantic miners such as Vale, Rio, and BHP have benefited from the broad upturn in commodity prices that started in 2016. That's spilled over into 2017, but you have to look beyond that headline to understand what's going on at each of these companies.
If you're seeking a gigantic miner with a heavy focus on iron ore, each of these three companies will fit the bill. However, with Vale and BHP still facing Samarco uncertainty until at least June, Rio Tinto should probably be the top option on your list right now. It may not be the one you choose to buy; however, it appears relatively well situated as the new year gets under way. But whatever you choose to do, make sure you dig in past commodity prices so you have a better understanding of what's really going on at these gigantic miners.|
|Why Commodities Are Set To Offer More Than Just High Volatility In 2017:
The best word to sum up the performance of commodity prices in recent years has been 'volatile'. Their prices have swung violently and left many resources companies and investors nursing heavy losses at times
For example, since Donald Trump's election victory the price of gold declined by as much as 13%, while during the same time period the oil price has risen by 12%. Similarly, iron ore is up over a third from three months ago and has left behind a trail of considerable volatility.
Looking ahead, commodities could continue to be volatile. After all, the outlook for the global economy is highly uncertain. However, they may also offer significant profitability for those investors who are able to buy and hold through what may prove to be yet more yo-yoing prices.
Supply and demand:
Clearly, commodity prices are always heavily dependent upon changes in supply and demand. In the case of oil, the outlook for 2017 is relatively positive. OPEC agreed in November to reduce production by 1.2m barrels of oil per day.
This was somewhat surprising and was followed by a cut among non-OPEC members. Although demand growth has been somewhat sluggish in recent years, the imbalance between demand and supply is expected to narrow in the coming months.
In fact, the International Energy Agency (IEA) predicts the current oil surplus will become a deficit before the end of the first half of 2017. Given that forecast, it seems likely that the oil price will continue to move higher in the short term at least. Therefore, it would be unsurprising for oil-focused companies to record strong returns in the coming months.
An uncertain outlook:
While the price of gold came under pressure following Trump's election victory, it has recovered strongly in 2017. It is up 3.5% since the turn of the year and it could keep rising during the coming months.
A key reason for this is the high degree of uncertainty that faces the global economy. In the US, Trump's economic policies are likely to include significantly higher spending on infrastructure, coupled with lower tax rates.
The effect of this is likely to be higher rates of inflation which the Federal Reserve may or may not be able to slow down through higher interest rates. During periods of a rapidly rising price level, demand for gold increases because it is seen by many investors as a store of wealth.
In addition, gold's outlook could be positive because of uncertainties in Europe. The precious metal's status as a defensive asset may come into play as Brexit negotiations start within the next nine weeks.
French elections could also increase the attractiveness of risk-off assets such as gold. Similarly, a slowdown in China's growth, caused by a more protectionist global economy, may also cause gold's price to rise this year.
A changing China:
While gold and oil offer clear catalysts for price growth, iron ore's future is somewhat more opaque. It has benefited in recent months from the Chinese government's stimulus programme, as well as continued rising steel production in the world's second-largest economy.
Furthermore, the mothballing of various large projects within the iron ore industry has caused investors to anticipate a more favourable price in the long run, given the current relationship between demand and supply.
However, the reality is that China's economy is not only slowing, it is also transitioning. It is currently the largest importer of iron ore in the world, but its move away from infrastructure-led growth and towards consumer-led growth could mean demand for iron ore falls in the long run.
Therefore, while the iron ore price could rise in 2017, it is perhaps less likely to do so than other commodities such as oil and gold.
While commodity prices could remain volatile during 2017, they also offer the potential for high profits. Therefore, investors who are able to live with prices that lack the consistency and stability of shares in other sectors may have an opportunity to benefit.
Certainly, the outlook for gold and oil is relatively positive. In gold's case, it could benefit from the uncertainty which looks set to be a key feature of 2017.
Similarly, oil's price could respond positively to demand catching up to supply over the coming months. While iron ore's future may be less attractive than that of oil and gold, lower than expected supply and increasing steel production in China could push its price higher during the course of the year.
As such, now could be a good time to buy shares in resources companies. Due to the high volatility and falling commodity prices in the past, wide margins of safety and low valuations appear to be on offer. While paper losses seem likely to be recorded at times during the year, by the end of 2017 there could be a tidy profit awaiting those investors brave enough to buy resources companies now.|
|By Owen Raszkiewicz - Rio Tinto and BHP Billiton are two of my favourite mining companies, but I would not buy their shares today.
The share prices of BHP Billiton and Rio Tinto have rallied over the past year.
Given both companies are resources businesses focused on producing commodities such as iron ore, coal, copper, oil (in BHP’s case) and aluminium, both companies’ share prices have soared in response to an increase in market prices.
Indeed, every single one of those commodities has rallied over the past 12 months. Iron ore, for example, is up over 101%.
The basis for the gains in iron ore, coal, copper and aluminium are often attributed to China’s huge stimulus packages.
In 2015, China upped its stimulus to 17.6 trillion Yuan — the equivalent of $US 2.56 trillion (with a ‘t’). Still, its deficit widened.
For comparison, Donald Trump’s election campaigning promised $1 trillion on infrastructure spending over 10 years. Some anecdotal evidence suggests that it is the equivalent of what China spent in nine months in 2016.
Another boost to BHP’s share price is the rally in oil prices. This has come about because OPEC, a group of countries whose economies depend on oil to reach break-even, finally agreed that enough high-cost producers from the U.S. shale oil fields were forced out of the market and decided to cap production. OPEC capped production so prices would rally. And they have.
In summary, you can see why Bloomberg, Sky News, CNBC and every other financial news channel devotes so much of their time to understanding political decisions from China, the USA, OPEC and the rest.
That’s too difficult for me.
What I’m trying to emphasise here is that while Rio Tinto and BHP Billiton are more likely than most to weather a downturn in commodity prices — they are heavily leveraged to the industry by nature and design. That means, if commodity prices fall, their share prices could also head south — and quickly.
If I were to pick one, I would choose BHP. But like I said at the beginning of this article, I’m not a buyer of any of them. And if I held shares I would want to make sure I’m not overexposed to the sector throughout 2017.|
|Australian minister - bloomber
POssible 10% rise in minals/metal / commodoties
extraction is the key [point now|
|Meant to say $5-10 a barrel from last update|
|BHP Billiton and its partner Vale will settle a multi-billion Samarco dam disaster claim within the next five months after agreeing to the nuts and bolts of a deal with Brazilian prosecutors who had set a 30 June deadline with federal prosecutors in Brazil to settle a $47.5bn (£38bn) claim related to a dam failure in November 2015 which killed 19 people.
BHP Billiton, Vale and Samarco will initially pay 2.2bn reais ($675m) to support compensation and social and environmental remediation of the dam failure.
This comprises a charge over Samarco's assets of 800m reais ($245m), insurance bonds of 1.3bn reais ($400m), and liquid assets of 100m reais ($30m).
If the final settlement is not agreed by 30 June, then the prosecutors may request an injunction of 1.2bn reais ($370m) injunction.
The deal with the federal prosecutors also requires the companies to advance reais 200m ($60m) of the funding to programs for the municipalities of Barra Longa, Rio Doce, Santa Cruz do Escalvado and Ponte Nova.
The companies’ ultimate aim is to barter prosecutors down to a compensation figure some way below £38bn.
Prosecutors in Brazil have past form in demanding vast damages but settling for far less: in 2013, Chevron agreed to pay a $135m fine for an offshore oil spill, having initially faced claims for $18bn.
In the Samarco case, prosecutors based their number on the clean-up costs of the Deepwater Horizon oil spill in 2010, saying the “human, economic and environmental impacts” are “at least equivalent to those observed in the Gulf of Mexico”.
Under the latest agreement, the miners will seek to roll the prosecutors’ claim into a separate deal struck with the government last year, under which they agreed to pay at least $2.3bn to fund a foundation that would restore the local environment and compensate victims.
The so-called “framework agreement”, which was signed by former president Dilma Rousseff in a high-profile press conference last March, was suspended by the courts as the prosecutors’ claim was heard.
While the preliminary agreement means BHP is a step closer to drawing a line under the Samarco catastrophe, uncertainty remains over the size of the final settlement. BHP has so far set aside $1.3bn to cover the costs of the accident.
"It is good that they have agreed a way forward but we really have to wait and see what the total cost and timing of the restart is before getting too excited," said Myles Allsop, an analyst at UBS.
A group of Samarco employees still face criminal charges over the accident, and the restart of the mine, which was a major employer in the region, is up in the air.
Fernando Coelho Filho, Brazil’s mining minister, said in a speech at Davos this week that he expected Samarco to resume operations within two months, but industry experts believe this unlikely, as the mine must wait for a number of environmental and safety licences.
A report by New York law firm Cleary Gottlieb last year blamed the dam’s collapse on tweaks to its design, which resulted in water seeping into the infrastructure and “liquefying221; its foundations.|
|Shares of mining heavyweight BHP Billiton Limited (ASX: BHP) enjoyed a stellar year in 2016 and are off to a flying start again in 2017. While the shares have risen 1.3% today alone to trade at $26.36, they have gained an impressive 5.2% since they traded for $25.06 at the beginning of the year.
As has been the case with various other miners, including Fortescue Metals Group, Rio Tinto and Whitehaven Coal, BHP’s resurgence can largely be attributed to a lift in the price of iron ore and coal. Oil prices have rebounded nicely too, providing plenty of drive for the BHP Billiton share price.
If commodity prices continue to rise, or even if they remain stable at their current levels, BHP’s shares could have further to run. That said, investors do need to be aware that further capital gains from the stock (and indeed, dividends as well) will be largely dependent on that happening: if commodity prices decide to fall again, it could put a real dent in BHP’s prospects.|
|Was the right call. Top slice a few.|
|Load up time.|
|Copper/oil doing well for BLT tomorrow|
|Can you please give credit to where you have obtained your article.....the author is good but only part of the pitchure.
|By Paul Franke, Contrarian, long/short equity, special situations.
BHP is financially strong and well positioned at the 2016 commodity bust low.
The stock is trading at a long-term discount ratio relative to book value and trailing cash flow.
Shareholder value is increasing smartly with rising industrial commodity prices of late.
BHP Billiton is one the largest diversified natural resource miners in the world, mainly selling to Asian customers from its Australia headquarters. It serves four main markets - petroleum, copper, iron ore and coal. BHP is a subsidiary of BHP Billiton Group, with 65,000 employees around the world.
After suffering through 5-10 years of a painful commodity cycle bust, including low inflation rates globally, a great recession in demand, and serious oversupply issues in each commodity mined, the company appears well positioned to serve as a portfolio inflation hedge going forward.
With a $38 stock price today, lower than 10 years ago and considerably off its all-time peak of $104 in 2011, BHP investors are ready for brighter days. Rising smartly from the early 2016 commodity bust low under $20 per share, just a small change in underlying business fundamentals and expectations by investors has doubled its 2016 equity quote.
Long-Term Value Play:
Using Wall Street analyst consensus numbers, June 2016 fiscal year operating income per share of $0.46 is expected to double to $0.91 this year (June 2017), and almost double again by June 2018 to $1.66. After years of write-offs, mine closures, and asset restructurings, BHP still holds $54 billion in shareholder equity. Against $64 billion in total liabilities, the conglomerate is in excellent financial shape moving forward in the capital-intensive mining industry.
At an equity market capitalization around $100 billion presently, considerable value is still inherent vs. both book value and trailing cash flow. The 10-year average price to BV is close to 4x and CF a little over 10x. Compare that to today's 2x BV and 9x trailing CF ratios. If Wall Street estimates prove correct, one can easily project a $60-$70 target price for BHP by 2018, using history as a guide. A bonus for investors is the company has a decades long record of paying dividends. The indicated annual payout rate of $0.56 (1.5% dividend yield) could rise dramatically in coming years if commodity inflation takes off.
Commodity Inflation Hedge:
Not only does BHP Billiton have above average shareholder value right now, a strong balance sheet, large diversification of output/resources, and low overall costs, but it is gaining upside momentum as commodity prices have zig-zagged higher since early 2016. Iron ore has risen from $40 to $80 per ton the last 12 months, crude oil $36 to $51 per barrel, natural gas under $2.00 to well over $3.00 per BTU in the U.S., coal (depending on variety) +50% to +100%, and copper $2.10 to $2.70. Mind you this sharp increase has occurred during a period of relative U.S. Dollar strength, not weakness. Given any type of Dollar weakness, commodity upside in 2017 could be exaggerated dramatically HIGHER.
How much upside is left in BHP? Plenty for long-term investors. During the strong boom period for commodities between 2003 and 2008, the company's earnings rose 10-fold over five years. The stock price exploded from $10 to $95 over the equivalent span. One can argue the 2016 blow-out bottom in valuations was just as big a bargain versus 2003 or the great recession crash low of 2008-09. For long-term investors, especially those searching for a conservative hedge against commodity inflation or a lower U.S. Dollar currency, without oversized volatility or investment vehicle time decay, BHP is a unique choice.
Strong Momentum Trading Characteristics:
The last 3-6 months have been good to BHP investors. BHP is performing far better than the S&P 500 average large cap business, Gold Miners ETF and Oil Producers ETF, while performing almost as well as its higher leveraged mining brothers & sisters in the Basic Materials Mining ETF and Coal Mining ETF.
Of particular note for BHP is a robust buying trend in the On Balance Volume [OBV] indicator. In a nutshell, sellers have been few and far between since September, when measured against increasing buying volumes and investor enthusiasm.
From late 2016, any strength in commodity pricing will go directly toward BHP's bottom line, increasing profits and sales per share disproportionately, all else being equal. Investors in the company have moved from a truly pessimistic view of the company at $19 per share in January to a more realistic outlook in coming years. The result has been a rough 100% gain in price to $38 today. The strong momentum since the summer has my Victory Formation momentum system pointing to BHP as a great buy idea on weakness. Specifically, a drop to $35 or $34 a share would be a welcome entry point for new long purchases. Nevertheless, a quote decline may or may not occur soon. If you are in need of a good uncorrelated hedge idea in a financial asset portfolio of stocks and bonds, BHP Billiton Limited should definitely be on your radar screen for additional review.|
|By Kevin George, Long/short equity, currencies, commodities.
Miners continue their rebuilding efforts:
Despite a strong rally in mining stocks over the last few months BHP Billiton and Rio Tinto still find themselves down 48% and 19% respectively over a 5 year period.
Slowing global growth, particularly in China, has hammered the price of commodities in that period and led to heavy losses for the mining giants. Commodities have since seen a strong revival this year and many hope that we have seen the bottom in these stocks.
Some caution is still advised as analysts such as Credit Suisse and Goldman Sachs see Iron Ore prices falling back in the first quarter of 2017, while oil prices still fight to hold above the $50 level.
Historical ratios favor BHP:
Since we mentioned the losses seen over a 5 year period, it is worth looking back at the 5 year historical ratios for both companies in order to see which company has weathered the storm more effectively.
Both companies have a similar gearing but it is BHP Billiton who come out on top in the key measures such as return on assets, investment and equity showing wide margins versus Rio Tinto. BHP also shows similar strength in profitability ratios and efficiency so if commodities really do continue their upswing we can assume that BHP will make better use of their revenues and asset base and the recovery in stocks may be similar to the 2:1 drop in price that we saw between the two companies since 2011.
Although BHP has paid higher dividends historically, management may choose to de-lever the balance sheet before committing to further shareholder rewards. Both companies are committed to increasing cash flows through increased productivity on their existing asset base and this is where BHP's efficiency in recent years could see them outperform.
If the analysts are right then a pull back in Iron Ore would be more detrimental to Rio Tinto than BHP. Once the current speculative rally on Trump's economic plans recede, it may be oil & gas that benefits through the recent OPEC production cut plans, which would be another win for the more diversified Billiton.
BHP continued their commitment to deepwater oil recently, becoming the first foreign company to partner with Mexico's state-owned oil company to develop the already discovered Trion field, defeating BP to the prize.
Trump tariffs and the 2017 outlook
After navigating the worst of a commodity storm, the world's largest mining firms now face another "black swan" event in Donald Trump's threat of tariffs on China; a country which accounts for 41% of BHP's earnings.
President Trump had threatened blanket tariffs of 45% on Chinese imports which left many concerned of future trade wars. BHP Billiton's President, Andrew McKenzie, commented that; "the whole world will start to be in complete trauma if tariff levels of that size and magnitude are put on across the board".
It remains to be seen if this was more bullish rhetoric from the incoming President, however it is another cloud hanging over the recovery in mining stocks until the matter is clarified.
The commodity story in 2017 is likely to be one of stability and consolidation with the worst of the drama over, however another threat to this picture is the surging U.S. Dollar, which again may see further inflows if Donald Trump's revolutionary plans for taxes etc can stimulate the economy and bring offshore cash and hot money into the United States economy.
The worst of the losses in commodity stocks seems to be over and it looks likely that the world's big mining companies will be able to repair their balance sheets further and see continued gains in stock prices.
More stability in commodity prices will increase cash flows and continued cost-cutting efforts to leverage their existing asset bases should put both companies on a stronger footing for the new year.
The real threat to these firm's strength next year seems to rest with incoming President of the United States, Donald Trump, whose threat of tariffs on Chinese imports would see a bloodbath in commodity stocks. Likewise the desire to charge up domestic growth could see continued surge in the U.S. dollar, which would weigh on further commodity price gains.
BHP Billiton's efficiency over Rio Tinto makes it the pick of the two but the key question will be whether investors are willing to call "The Donald" bluff.|
|not often you see action like this outside of an intraday chart with an algo buying causing a sustained 45 degree rise, impressive however mature|
|It´s this time of year again when the pundits make their predictions for next year.
They´re saying they expect gold and silver to trade a little lower while forecasting the price of Copper, Iron Ore and Thermalite Coal to be substantially higher in 2017 compared to 2016 which bodes well for BLT, Zinc is also expected to carry on doing well.|
|Zinc as someone has said is good and now we have oil in the the Gulf of M to help profits along............good deal I am told at sensible prices.|
|Buy on any dips,as we have a long way still to go.|
|Spot price for Zinc now nearly $2,700 per ton. What could of been when it comes to ZOX, too small and under funded to with stand a short term drop in the Zinc price to $1,450 per ton.
Dominic Frisby - Today we turn our attention to a metal which often passes without notice.
It isn’t glamorous like gold or silver, nor is it rare like platinum or rhodium.
It isn’t controversial like uranium, strategic like tungsten or cobalt, nor even widely talked about like iron or copper.
But it has, quietly, had a stellar 2016. It’s currently up almost 60%.
Today we’re talking zinc…
Zinc is in short supply:
Having started 2016 at just over 70c per pound, the zinc price currently stands at $1.17 a pound.
All of the usual factors have been driving the price. Firstly, there’s a lack of supply. China is the world’s top producer, contributing some 37% of global supply last year. However, last year it shut down some 26 lead and zinc mines for environmental reasons.
In addition, Australia’s Century mine and Ireland’s Lisheen mine, which between them produced about 5% of the global supply of zinc, have shut down due to depletion. Meanwhile, Glencore Xstrata’s Perseverance and Brunswick mines also recently closed.
As the zinc supply has dwindled, so the price has risen – and there’s nothing like a rising price to bring in more buyers.
After iron, aluminium and copper, zinc is the fourth most used metal in the world. (Although be aware that in some years this title falls to titanium). Annual zinc demand stands at 13.4 million tonnes.
Per year, it is a $34bn market. To put that number in some kind of perspective, silver is about an $18bn market and platinum just $8bn. Copper meanwhile, is closer to $150bn.
What is zinc used for?
The main uses for zinc are as follows.
Galvanising: this is the most important use for zinc, accounting for about 50% of annual demand. Iron and steel are coated in zinc to prevent rust. Galvanised steel is one of the strongest construction materials there is. It’s used to make the frames of large buildings, bridges, beams, piping, roofs, staircases – you name it.
Batteries: the world’s first battery – invented by Alessandro Volta in 1799 – used zinc as an anode. Zinc is still used in all kinds of batteries, from cheap to expensive: zinc-air (such as in hearing aids); silver-zinc (used in the aerospace industry); zinc-bromine (for energy storage); and plain old alkaline batteries – such as the AAs I have in my computer’s mouse.
Solder: zinc, lead and tin alloy is used to join electrical components and pipes.
Nickel-silver: this is actually zinc, copper and nickel, and is used in keys, zips, silverware and musical instruments (brass requires zinc).
Almost half of annual zinc demand comes from China, which is still building buildings and bridges, despite its economic slowdown. And if Donald Trump’s proposed infrastructure splurge comes to fruition, you can expect US zinc demand to grow considerably in the coming years. Zinc is a beneficiary of government infrastructure spending.
How to buy zinc:
The simplest way to invest in zinc is to buy one of the zinc exchange-traded funds (ETF Securities offers a London-listed one under the convenient ticker ZINC) or to buy it via a spread bet. All the usual risk warnings apply (particularly to the spread betting).
Alternatively, you can go down the individual company route. BHP Billiton (LSE: BLT) is the world’s largest producer – although, of course, it produces many other commodities as well, so it is not a pure zinc play. I like BHP and, like zinc, it is in a strong uptrend. At 1,326p it has more than doubled from its lows of below 600p at the start of the year.
A purer play might be Griffin Mining (LSE: GFM), which owns just under 90% of an operating zinc-gold mine about 300 miles north-west of Beijing. However, while I’m mentioning the company, that does not constitute a recommendation – if you’re keen on the theme, then it’s one to do your own further research on. Otherwise I’d stick with one of the bigger players.
According to a report on Bloomberg, the Bloomberg Commodity Index posted its biggest three-day advance since June, with Goldman Sachs saying investors should bet on higher prices in the next year as manufacturing picks up around the world.
“Faster growth should bolster demand for commodities, and help pave the way for higher corporate profits.”
“You’re seeing some strength across the board. That’s a healthy sign and indicates to me that we’re in a bull market.”|
|Broker Forecast - Deutsche Bank issues a broker note on BHP Billiton PLC
Deutsche Bank today reaffirms its hold investment rating on BHP Billiton PLC (LON:BLT) and raised its price target to 1350p (from 1260p).
Broker Forecast - Macquarie issues a broker note on BHP Billiton PLC
Macquarie today reaffirms its outperform investment rating on BHP Billiton PLC (LON:BLT) and raised its price target to 1530p (from 1470p).|
BHP to continue mining throug christmas|
|Trump and brexit shares for the ride upwards of the new spending era.|
|smart move . Unexpected fall today .|