It was another strong week for the UK Index Miners with gains of up to 16% on offer within the highly popular sector, extending already exciting bounces to as much as 340% over the last year and 500% from their troughs. Catalysts included Chinese data supportive of an important transition from manufacturing/export-led to more service/consumption-oriented economy, a move that should help avoid the hard landing that markets were so fearful of this time last year, when commodities and their respective extractors were in freefall towards what was, in hindsight, rock bottom.

Decent China inflation data on Tuesday, especially for producer prices (fastest growth since end-2011) gave a fillip to base metals prices helping the widely followed Iron ore and Copper bounce and break higher, respectively. A bounce in oil prices on optimism towards OPEC-led production cuts after Saudi Arabia said it was cutting more than expected and others did its usual to buoy commodity sector sentiment. There is also much hope that stateside stimulus from Trump and a Eurozone recovery maintains demand for raw materials. China trade data today, whilst mixed (good in local currency, not so good in dollars) has also been digested as positive, helping maintain sector strength into the weekend, even the pace of gains has slowed up.

Many are understandably sceptical of sector shares after rallies of 50-340% since 31 Dec 2015 and 65-500% from their panic lows of last Jan/Feb. And there are fundamental reasons to question the sustainability (china high debt, Trump uncertainty, Brexit knock-on, etc). However, as economist John Maynard Keynes said: “The market can remain irrational longer than you can stay solvent”. The recovery rallies have been questioned for well over six months now, but don’t forget that prices had fallen by over 80% in some cases, the new low base making it much easier to deliver strong recovery bounces and big percentage gains. None are anywhere near all-time highs, as we have seen elsewhere with the UK Index and many of its components. All are simply making up lost ground.

For example, Anglo American (AAL) has made fresh 2yr highs above 1300p, while BHP Billiton (BLT) trades an 18-month best after clearing 1400p. However, both delivered their most important breaks from horrible downtrends back in October. Antofagasta (ANTO) and Rio Tinto (RIO) didn’t do so until November. Most significantly, Glencore (GLEN) has only just broken above 5yr falling highs at 300p this week. A big event and hurdle cleared for sector sentiment as it was the most battered stock early last year.

This implies investors remain confident in sector prospects from an economic growth, business strength and share price returns standpoint (capital growth + dividends). A cursory look at the mining sector shows a November breakout and 180% rally from early 2016 lows still holding firm with upside of 10-15% still available should it regain the highs of summer 2014. A glance across several sector constituent charts backs up this observation, meaning the sector as a whole could well have further to run. Yes a big bounce has been had across the board. Yes you may have missed it, but this doesn’t mean you aren’t allowed to partake and profit from any further moves north.

As they say, “It ain’t over ‘til it’s over”, and “the trend is your friend, until the bend at the end”. The sector is so important and popular that rarely a day goes by without us commenting on it in the context of the UK Index , or look at the trends in metals prices moving the Miners themselves. This is what makes our research product so popular and renowned. If the sector is somewhere you like to or would like to trade why not get access to our research now to sample the quality of material our clients benefit from. You’ve nowt to lose and plenty to gain. As we said last week, think of it as a New Year’s Resolution to improve the quality of information you use to invest or trade.

Enjoy you weekend!

Mike van Dulken, Head of Research, 13 Jan