Resource shares dip after stellar rise

Shares in resources companies are at the crossroads in February as the sector consolidates after a strong start to 2017.

The resource 10 index has fallen 4% so far in February after rising 10.4% in January. It rose 26.4% in 2016, outperforming industrials and retailers.

The all share ended the year flat at -0.08%. Supply-and-demand fundamentals need to remain strong to justify the rally and present market valuations of mining shares. “Resources are always a tough call, because the level of uncertainty is so high,” said Stanlib retail investment director Paul Hansen.

Although iron and copper prices had dipped, he said, they remained buoyant.

“And gold and platinum shares have perked up in line with the weaker dollar.”

Platinum shares have gone off the boil after the index gained 50% in 2016. The index gained 23% in January but is only up 2% in February. Slightly higher global growth in 2017 should boost resources, said insurance group Coface. Global growth in 2017 was expected to be 2.7% from 2.5% in 2016. Resources were set to recover, but it was likely only to happen slowly, it said.

The IMF’s global raw materials index is predicted to increase 11% in 2017, compared with a 10% fall in 2016.

Further commodity price increases were tied to the oil price, which has gained $10 since December. Chinese growth and currency movements remain important issues.

The oil and the iron price remained in a price glut, said analysts at Nedbank Corporate and Investment Banking.

Copper had seen a sharp rally since the US elections in November, but paused as inventories remained bloated, said Nedbank. Iron ore reflected upbeat Chinese demand, with the past four monthly price increases the longest rally since 2012. China was the world’s biggest producer and consumer of iron ore and if it continued to stockpile, the price could rise.

Gold remains the wildcard. Spot gold jumped from $1,190 an ounce to $1,240 on Thursday in a matter of a week, indicating its potential safe-haven value.

Spot gold gained 8.5% in 2016 in volatile trade. It gained 5% in January and is up 1.6% in February so far as the metal gained renewed favour after US President Donald Trump’s first two weeks in office. It fell sharply following his election in November.

The gold index on the JSE has gained 17% in 2017 from 28% in 2016, but movement in the rand was crucial. A stronger rand would harm the short-term prospects of gold shares, unless the spot price rockets.