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If there was an albatross around the neck of the FTSE during 2013, it had to have been the entire mining sector. If the sector had performed better as a hole – er, I mean as a whole – who knows what heights the FTSE could have hit during the year. But, as was the case, the sector’s malaise may have actually prevented the index from establishing even greater record heights. Of course, as my grandpappy used to say, “If ‘ifs’ and ‘buts’ were candies and nuts, we’d all have a merry Christmas.”
Looking back, the primary issue with mining stocks has not been particularly performance related. Sure, there were issues at companies here and there, but probably nothing more than one should expect within the risky realm of reclaiming resources hidden in the firma parts of the terra. Rather, the sector languished on the looming probability that the hitherto voracious Chinese economy is losing its appetite for many of these unearthed commodities.
Today’s activity tends to indicate a potential turn in the tide. At 15:00 UTC three of the top five gainers on the FTSE were mining shares, specifically, Rio Tinto (LSR:RIO), Randgold (LSE:RRS) and BHP Billiton (LSE:BLT). Hochschild (LSE:HOC) and Glencore (LSE:GLEN) also contributed to the cause.
The sudden swing today seems to be supported by a strong two-legged stance. The first leg is the 4.16% increase in the RIO share price that followed the release of the company’s fourth quarter operations review. CEO Sam Walsh summarized Rio Tinto’s performance, citing “continued delivery on our commitments…new records for iron ore production and shipments…impressive recovery in copper volumes…record annual production for both bauxite and thermal coal…exceed[ing] our cost cutting targets…and complet[ing] $3.5 billion of non-core asset sales.”
The second leg in the stance was Citigroup’s public blessing upon BHP Billiton, upgrading it from “buy” to “neutral.” Citigroup is banking on BHP continuing to cut up to $2.6 billion in costs and to continue to divest under-performing assets. That outlook spurred a 3.5% increase in the BHP share price.
Citigroup gave the entire sector a shot in the arm when it also predicted a greater demand from the apparently recovery European and U.S. economies. Changing its ratings for the sector from “neutral” to “bullish,” Citigroup indicated that the demand from the U.S. and Europe should more than offset any decline in Chinese demand. Investor eyebrows should raise when we realize that this is the first time that Citigroup has taken a bullish position on the mining sector in three years.
This is only one day. There are still over 340 left in 2014. I wouldn’t start counting my chickens quite yet, but it does appear that they are about to hatch.
