Goldman Sachs Gets Bullish On Miners

A rebound in demand for commodities and particularly metals could result in a 30% rally in miners.

Commodities 6

Investment bank Goldman Sachs, has thrown its weight behind the mining sector, a sector which it believes will recover more quickly than other sectors in the FTSE thanks to rebounding commodity prices. 

The mining sector has so far managed to avoid an extreme downturn to the levels last seen in 2008 or 2015, an encouraging sign, particularly given that some sectors in the UK index, such as the travel and tourism sector are experiencing their worst downturn ever. 

Chinese metal demand ramps up
Increasing demand from China, the world’s largest consumer of metals is expected to support the sector. Recent data has revealed that the Chinese economy is starting to reignite, albeit slowly. Foreign demand remains weak; yet, as economies across the globe continue to reopen, demand is expected to start recovering.
Goldman Sachs also believe Beijing will use tried and tested measures of stimulating the Chinese economy. These measures are likely to include credit easing, in addition to boosting construction projects such as infrastructure and property, which are expected to be strong demand drivers in the second half of the year.

Metal prices jump
Goldman Sachs predicts that iron ore prices will remain elevated after reaching a fresh record high earlier in the week.  Steel consumption in China is ramping up to record levels whilst concerns are growing over Brazilian supply amid the covid-19 outbreak. This is resulting in supportive supply demand fundamentals for a rising price. 
Copper, which dropped sharply yestersay following the Fed’s gloomy outlook had just recovered losses for the year climbing 20% in just 3 months. Chinese demand is expected to limit any further downside. The metals are certainly in a very different position now than they were in March when the coronavirus lockdown was creating fears of a glut in the metals market.

Anglo American
The stock is up 36% in the past month, currently trading at 2250p.  EBITDA has increased consistently since 2015. Costs have been successfully brought down, as have the number of mines being operated, although revenue has increased. Debt, which had been a big problem previously, is down too from $12.9 billion in 2015 to $4.4 billion
Anglo American had its price target raised by Goldman Sachs to 2300p from 2150p.
The stock continues to trade above its 50, 100 & 200 sma on bullish chart, despite 4% selloff yesterday.

BHP Billiton
Iron ore and copper are BHP Billiton’s biggest earners. In the 9 months to 31st March BHP Billiton had hit record production in iron ore. Copper is also a good earner of Billiton although less influential.
BHP Billiton’s rebound has been nothing short of impressive. The stock trades back close to levels last seen pre-covid-19. The stocks remains above its 50, 100 and 200 sma.
BHP Billiton’s price target was increased to 1750p from 1450p

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.