At least for a few investment banks like JP Morgan Cazenove and Citigroup, the negative tides for mining stocks appear to shifting towards the positive as they have changed their views from bearish to neutral.
JP Morgan Cazenove is still taking a guarded position towards mining stocks but sees companies within the industry aggressively cutting costs which is one of the reasons why mining stocks rise.
Citi analysts stay negative in their short-term outlook of the sector except furthermore observe some positivity in mining stocks in six months.
“We believe that the large miners, such as Rio Tinto and BHP Billiton, are now reaching yield support as they are trading on higher yields than the market,” Citi said.
Eric Lemieux, mining analyst with Laurentian Bank Securities in Montreal, remains bullish on mining stocks, saying that the commodities super cycle has not ended and despite slowdowns in the economy, there is still strong metals consumption.
The hit that commodity prices and miners have taken in 2013 may not necessarily be a bad thing, he said.
“With this downturn, in the scope of things, I think it’s positive for the industry because we did have a period of micro inflation where costs had gone up tremendously in terms of labor and engineering firms; it just overheated,” Lemieux said. “This retreat and decline in commodity prices, although it hurts, there’s some positives here in terms of cost settling down.”
JP Morgan mentioned a bottoming out in Chinese commodity import volumes and Chinese commodity inventories coming off recent highs as a possible catalyst for stronger metals demand.
While it boils down to consumption and a need for commodities for Lemieux.
“If you look at what’s going on in Asia, even though there’s been a slowdown in China, they’re still consuming, they still have to modernize,” Lemieux said. “I have a sense that things will eventually bounce back up.
“I think the end game is that commodities have some way to go and I wouldn’t be neutral,” he added.
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