Macro outlook supports mining sector
The macro-economic backdrop will further support demand for metals however China’s reform policy is expected to soften future metal demand, according to ETF Securities Equity Research.
Additionally, the company said in its report that current benefits of the weaker US dollar on higher commodity prices would be outweighed by higher local currency input costs for producers in the mining sector.
According to ETF Securities, the global expansion and increasing consumption of metals led to a rebound in the price of most metals this year and as a result the top 100 diversified miner’s aggregate price appreciated 86 per cent since January, 2016.
On the other hand, the Chinese reforms and the ongoing cooling of fiscal stimulus to the manufacturing and construction industries might dampen new demand for industrial materials.
ETF Securities’ study also noted that capex growth turned positive for the first time in five years and that the electric car revolution would help drive further opportunities for investment for the mining sector.
Also, a vast variety of metals were expected to continue to extend their supply deficits into 2018 as demand would outstrip supply while declining inventory levels of some global metals remained supportive of their price recovery.
The report also stressed that miners were not cheap.
“Recovering commodity prices, an emphasis on debt repayments and improving liquidity have helped alleviate pressure from ratings agencies as ratings outlooks for base and precious metal turn positive,” the report said.
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