Over the last 21 months, investors who ventured into resource stocks when no one else would are now feeling pretty good about themselves. Not only has the S&P/ASX 200 Resources Index rebound from a 28% decline in 2015 to a 35% climb in 2016. The index continues to rise higher into 2017.
Year-to-date, the S&P/ASX 200 Resources Index is up 8.2% to 3,630.3 points. As reported by the Australian Financial Review:
‘BHP and Fortescue Metals Group, which delivered big boosts in profits and dividends during reporting season, are up 23.5 per cent and 29.4 per cent respectively since June 21. Rio Tinto is up 18.1 per cent, while Whitehaven Coal is up 36 per cent and Oz Minerals 19.4 per cent.’
Iron Ore and Coal Stronger than Expected
The price jumps shows that investors are just following commodity prices. Key commodities like iron ore and coal have been stronger than expected for most of the year. Copper in particular has been a star performer.
Copper Price Surges Up
In the last year, the price of copper has continued to run up, surging 20% since late June to the start of September in 2017.
In their June 2017 outlook, the Organisation for Economic Co-operation and Development (OECD) said (my emphasis):
‘The drag on growth from declining resource-sector investment will fade and gathering momentum outside the resource sector will support wage and employment growth, thus boosting consumer spending. Tightening labour and product markets will bring inflation up from current low levels.
‘…In the resource sector, the cutbacks in investment are coming to an end and the rebound in iron-ore and coal prices has boosted business income and tax revenues. Also, new liquefied natural-gas (LNG) production is coming on stream.’
One analyst who is bullish on the resource sector is Shaw & Partners’ Peter O’Connor. But while O’Connor is optimistic, he’s also cautious of the potential risks, stating:
‘Not wishing to sound nervous but it feels like some consolidation is due/pending…’
Of course it’s impossible to know what will happen to commodity prices within the next year. However if you have a long-run bullish view on commodities like iron, ore, copper and coal you may want to check out these top ten mining stocks which are trading on the ASX right now.
Junior Analyst, Markets & Money