Biggest mining equity rally in years built on shaky foundations – by Clara Denina (Reuters U.S. – March 18, 2016)

LONDON – The biggest rally for mining company shares since 2009 risks fizzling out as gains have largely been driven by funds reversing bets on lower prices rather than long-term investors looking for value.

The benchmark FTSE 350 mining index, which tracks the performance of the UK’s 11 biggest listed miners, is up 26 percent this year, the biggest quarterly gain since September 2009, and marking a revival after three years of losses.

Sentiment in the sector has been helped by a weaker U.S. currency, which makes dollar-denominated commodities cheaper for non-U.S. consumers and expectations that top consumer China will use further stimulus to boost its flagging economic growth.

As a result prices of commodities such as copper, used widely in power and construction, have risen 7 percent this year, while iron ore is up 29 percent.

Equity investors have jumped on the bandwagon and miners such as Anglo American and Glencore have recovered from last year’s losses of more than 70 percent. Both are up around 80 percent so far this year.

Data from the Financial Conduct Authority (FCA) shows funds’ net short positions in Anglo American are now at 4.5 percent from a record high of 5.7 percent on Feb. 9, Glencore’s dropped to 2.5 percent from 5.6 percent in January and Rio Tinto’s hit the lowest since August 2015 at 0.7 percent.

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