If 2015 was a year that saw mining stocks crushed by falling commodity prices, 2016 has been a dazed stagger back into the light. The share prices of the major London-listed miners have bounced back further than many would have dared hope six months ago.
Supported by unexpected strength in commodities, the FTSE 350 Mining Index has climbed 53pc. But it’s not time to celebrate just yet: the global miners are still nursing the hangover from their last, decade-long party.
‘Supercycle’ is in the rear-view mirror
For 10 years, from around 2003, commodities were super-charged by the growth of China. The miners ramped up output, pouring some $1 trillion into new projects. When growth in China slowed, commodities were left in oversupply, pushing down prices and killing profits.
Ivan Glasenberg, chief executive of Glencore, told the industry earlier this year it needed to reflect on “lessons from the last cycle” and “recognise damage done when capital is mis-allocated” – something all the miners have been guilty of at one time or another. Glencore is one of the few to have cut production; for Glasenberg, chasing market share isn’t worth the consequent hit on prices.
Commodities rally – but is the peak already here?
The strength of the rally has surprised analysts. Iron ore – used in steelmaking, and the key commodity mined by the likes of Rio Tinto and BHP Billiton – has risen 26pc this year. Zinc, nickel and aluminium are up by 30pc, 10pc and 8.6pc respectively. Gold and silver have soared 27pc and 42pc on the back of heightened global uncertainty – fed in recent weeks by fears over Brexit. Copper, meanwhile, has retreated fractionally.
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