Mining stocks surge as end of commodity rout called – by Frik Els ( – October 7, 2015)

Morgan Stanley sees a sharp reversal in commodities with prices rising nearly 20% by 2017 making mining stocks historically attractive

Investors returned to the metals and mining sector in a big way on Wednesday after an analyst report called a bottom in the commodities rout.

On the Comex market in New York copper for delivery in December climbed 1.7% to a three-week high of $2.3960 or $5,280 a tonne before paring some of the gains in afternoon trade. The red metal is up more than 6% from a six-year low hit at the end of September.

The benchmark price of iron ore also advanced on Wednesday to exchange hands for $54.50 extending the steelmaking raw material’s bull run since hitting record lows in July. Iron ore is up 24% from the trough staying above the $50 a tonne level for the last 12 weeks.

Iron ore and copper are seen as bellwethers for the mining sector and today’s rally comes on the back of a positive research note from Morgan Stanley quoted in the Wall Street Journal.

The investment bank believes that the tide is turning for beaten down commodities and the worst may be over mining stocks that have seen valuations drop dramatically since the start of the year.

[Morgan Stanley analysts] see commodity prices rising 19% by 2017, adding this “would be a sharp reversal from the experience in the last 18 months.” Equities exposed to the sector, they said, will likely outperform.

“Emerging markets and China in particular remain key to commodities demand. In the next few months we expect the perception around this demand to improve. In particular the acceleration of financial and administrative stimulus policies in China in recent weeks should start to feed through in both actual activity levels and equity market expectations,” they wrote.

The comments led to a broad advance among mining’s heavyweights led by two of the biggest losers this year – Glencore and Anglo-American.

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