Base metal stocks rally on expected US infrastructure boom

President-elect Trump’s promise of rebuilding the country’s creaking infrastructure sparked life into aluminium, copper, iron and coal-related businesses

PUBLISHED : Thursday, 10 November, 2016, 2:52pm
UPDATED : Thursday, 10 November, 2016, 10:19pm

Speculation of a surge in metals demand from the United States from greater infrastructure spending after Donald Trump won the presidential election has prompted investors to bid up Hong Kong-listed base metals stocks, although gold shares fell.

But some analysts said they were cautious on the rally – a brisk turnaround from the initial sharp falls as investors were shocked by Trump’s surprise win – as it was driven more by sentiment than business fundamentals, adding that volatile trading will likely continue.

“It is unclear when and how much infrastructure investment will be realised, but investors are reacting as if it is already happening,” said Argonaut Securities metals and mining analyst Helen Lau.

“It has more to do with sentiment ... in the end, we need to look at the fundamentals which have been improving at least in China.”

Shandong province-based China Hongqiao, the world’s largest aluminium smelter, on Thursday closed 6.1 per cent higher at HK$7.25, while the second largest player, Russia’s Rusal, ended 15.9 per cent higher at HK$3.2 after jumping as much as 25.4 per cent at one stage.

MMG, the overseas mining unit of the nation’s largest metals trader, state-owned China Minmetals, rallied 11.7 per cent to HK$2.

Jiangxi Copper, China’s largest copper miner and smelter, gained 13.7 per cent to HK$11.48.

Iron ore surged by the daily 9 per cent limit to its highest since mid 2014 in China, after the Dalian Commodity Exchange raised the margin deposit requirement on the trading of coking coal and coke – two steel smelting ingredients – to cool speculation, which saw investors divert their bets into iron ore.

Iron ore rose 4 per cent on Wednesday to US$71 a tonne, the highest in almost two years, on speculation of much higher future US spending on roads and bridges, while steel smelting ingredient coking coal topped US$300 a tonne this week for the first time since 2011.

Copper gained 3.6 per cent to US$5,550 a tonne early Thursday on the London Metal Exchange after surging 3.4 per cent on Wednesday on the back of falling inventories, bringing its gain in the past month to 15 per cent. Aluminium rose by the 4 per cent daily limit in Shanghai on Thursday although it was flat in London early trading.

“Investors seemed to look beyond the [shock of the election] result to Trump’s goal to rebuild America with a big focus on infrastructure,” Australian bank ANZ’s analysts said in a note on Thursday.

“Iron ore jumped as recent curbs on coal futures trading were seen diverting funds back into the steel smelting commodity.

“However, with many of his policy measures still unknown, volatility is expected to be high in the coming days,” ANZ said.

A blanket cut in the cap on Chinese coal mines’ annual operating days to 276 days from 330 days by Beijing in May and a hotter than normal summer saw power station coal prices spike 51 per cent year on year in the first nine months as output fell 11 per cent while demand fell 2.4 per cent, according to a Citi research report.

Coking coal, used in steel smelting, rocketed 160 per cent from the start of the year on the supply squeeze.

Lau said metal prices have been driving China’s improving demand in recent months thanks to government economic stimulus, but steel demand is expected to be lacklustre in the long run.

Chen Hongbing, the secretary general of Jiangsu province’s steel industry association was quoted by the Xinhua News Agency-backed Economic Information Daily as saying China’s steel demand is forecast to fall precipitously to 552 million tonnes in 2025 from the peak of 702 million tonnes in 2014.

Meanwhile, gold stocks fell as investors pulled money out of safe haven assets on expectations of a reduced likelihood of an interest rate increase next month, as they expected US regulators will hold off on any rise to avoid causing financial market instability following Trump’s surprise win.

Zijin Mining closed 1.8 per cent lower at HK$2.59 after sinking as much as 4 per cent, while Zhaojin Mining Industry lost 7.1 per cent at HK$8.12 and China Gold International Resources shed 7.9 per cent to HK$19.2.

Spot market gold sank to US$1,249 an ounce on Thursday from Wednesday’s high of US$1,337.