Johannesburg - JSE mining shares continued to rally yesterday after investment bank Morgan Stanley upgraded the commodities sector to ‘attractive’ and copper climbed to the highest in two weeks.
In the note, Morgan Stanley suggested that the sector would reap rewards from China’s move to stimulate its economy after the country introduced measures, including the devaluation of its currency, as its economy was growing below its potential.
Morgan Stanley said valuations were attractive and shares might outperform. “Emerging markets, and China in particular, remain key to commodities demand,” the investment bank said. “In the next few months we expect the perception around this demand to improve.”
It added that the industry was adjusting capacity to the weaker prices.
“Stable data from China in the last few months with a potential uplift from recent financial and administrative stimulus policies should increase conviction that the 19 percent commodity price uplift by 2017 in our base case deck is achievable.”
Low demand
China consumes the bulk of global commodities and low demand from that country has seen global commodity prices plunge substantially this year with copper, coal, platinum and iron trading at decreased levels.
It said the industry would continue to react to the commodity price declines by further cutting supply, which would lead to a re-balancing of supply and demand.
Morgan Stanley also said weakening balance sheets and declining availability and higher cost of debt had accelerated the process of capacity adjustment.
“With many commodity prices still sitting so deep in the cost curve, we expect that process to continue. Furthermore, we do not believe that all cost savings made to date are sustainable and expect a partial reversal to further support supply discipline.”
Copper rose to a two-week high as speculation the Federal Reserve will keep US interest rates near zero for longer boosted the appeal of riskier assets such as commodities, while investors expect further supply cuts by the biggest producers.
Lonmin has led the rally, rising as much as 31 percent before closing up 27.34 percent to R6.94 on the JSE. Anglo American gained 11.31 percent to R137.47 and Kumba Iron Ore climbed 4.99 percent higher to R89.41. Royal Bafokeng Platinum ended up 5.5 percent to R27.43 and African Rainbow Minerals soared to end up 5.17 percent to R61.
However, Sue Vey, a spokeswoman for Lonmin, said there was no reason for the move higher in shares. She said the stock was returning to its previous levels after a sharp decline in recent weeks.
Share prices including that of Lonmin have been correcting in the past few days.
Sibonginkosi Nyanga, an analyst at Momentum SP Reid, said the reason for the raise in the Lonmin price included: “The platinum price was up 1 percent yesterday and was about 0.33 percent higher on Tuesday with palladium up 2.25 percent.”
The JSE mining index yesterday strengthened by 4.78 percent to 21 026.82 points with some analysts saying the market had warmed up to the sector following Sibanye’s R4 billion bid for Aquarius Platinum on Tuesday.
“The market is enthusiastic about the sector because of the Sibanye deal,” Ben Davis at London-based Liberum Capital said yesterday. “The Lonmin shares could be up because there is hope that someone will make a bid for the company.”
Shares in London were also higher with Anglo American and Glencore leading mining shares higher, advancing as much as 14 percent and 11 percent, respectively. The 13-member FTSE350 mining index rose for a seventh day after mine operators sank 16 percent in August.
* Additional reporting by Bloomberg
BUSINESS REPORT