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The UK Index ’s Mining contingent is on the back foot this morning, holding the UK blue-chip index back after Rio’s Q2 Production Report delivered iron-ore shipments below analyst expectations, albeit still higher than both Q1’16 and Q2’15. Management has been fortunate to be able to reiterate 2016 production guidance thanks to limited weather impact, operational efficiencies and ramp-ups/roll-outs, however, its pledges of compelling and consistent returns are falling on deaf ears. This is because investors are focusing on a strong USD hindering a the commodity space recovery as the US Fed looks to hike rates and peers look to do quite the opposite.
Low/negative interest rates and the prospect of more monetary and fiscal stimulus from major central banks (Oz and NZ on top of BoE, ECB, BoJ) suggests flagging faith in a growth revival to counter a slowing China and a potential race to the bottom generating another round of currency wars that simply serves to send the USD even higher. To the detriment of key raw material prices.
Abandonment of a progressive dividend policy is also likely still proving a bitter pill to swallow for loyal holders, seeing the shares succumb to a bout of early profit-taking at 2540p following a 35% rally, cashing out just above April’s 2016 highs before getting a chance to challenge those of H2 2015 at 2640. Bearish double-top inspired by the sharp drop in Iron Ore prices and both Oil and Copper struggling?
Mike van Dulken, Head of Research, 19 Jul
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