Mining sector rallies as good news rolls in

THE sharemarket snapped its three-day losing streak to finish higher yesterday helped by resurgent mining stocks.

By InvestSMART · 3 Feb 2012

By InvestSMART ·
3 Feb 2012

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THE sharemarket snapped its three-day losing streak to finish higher yesterday helped by resurgent mining stocks.

Resource shares soared after commodities prices rose overnight following encouraging German, Chinese and US manufacturing data.

Data from the Bureau of Statistics released yesterday showed the commodities boom had widened the trade surplus in December, further underpinning mining stocks.

"We're getting some punch after the pinch," Stuart Smith, a senior adviser at Bell Potter Brisbane, said.

"The trade surplus is higher than expected, which will be a boon for our resources companies."

At the close, the benchmark S&P/ASX200 index was up 42.1 points, or 1 per cent, at 4267.8, and the broader All Ordinaries had risen 42.2 points, or 0.98 per cent, to 4333.2.

Ben Taylor, a trader at CMC Markets, said the positive overseas manufacturing data gave markets reason to take a better view of future earnings, given that the local reporting season was about to get under way.

Resource stocks also took heart from reports Glencore International was nearing an agreement to merge with Xstrata, adding mines from Africa to Asia to the world's largest listed commodity trader in a deal worth an estimated $US82 billion ($76.9 billion).

Among mining stocks, BHP Billiton rose 71? to $37.62 and Rio Tinto added $1.98 to $70.72. Fortescue Metals was up 3? at $5.01 and Newcrest gained 42? at $33.92.

The day's top performer was Lynas Corporation, which surged 26?, or 19 per cent, to $1.58 after it was granted a temporary operating licence for its Malaysian rare earths plant despite some local opposition.

Qantas added 4? at $1.60 after the airline announced it would raise fares on domestic and international routes in response to increased fuel costs and carbon pricing schemes in Australia and Europe.

Wesfarmers gained 19? to $29.90 after its supermarket chain Coles reported its best yet Christmas sales, contributing to a 7.3 per cent rise in first-half sales to $17.5 billion.

The director of equities at RBS Morgans in Brisbane, Bill Chatterton, said the muted reaction to Coles's sales data was owing to the relative strength of the Wesfarmers stock compared with Woolworths, as much of the good news appeared to have already been priced in.

Woolworths shed 10? to finish at $24.60.

Among the banks, Westpac added 7? to $20.92 after the Finance Sector Union confirmed that 560 jobs were to go at the bank in the latest round of job cuts to hit the financial services sector.

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Frequently Asked Questions about this Article…

Why did ASX mining stocks rally today and what drove the mining sector recovery?

The article says mining stocks rallied after commodities prices rose overnight following encouraging German, Chinese and US manufacturing data. Australian Bureau of Statistics data showing the trade surplus widened in December also underpinned resources shares, and reports that Glencore was nearing a major merger with Xstrata boosted sentiment.

How did the wider trade surplus in December affect resource companies and ASX mining stocks?

According to the article, the commodities-driven widening of Australia’s trade surplus in December is expected to be a boon for resources companies. In simple terms, stronger export conditions and higher commodity prices helped support miner earnings expectations and lifted mining stocks on the ASX.

What is the significance of the reported Glencore and Xstrata merger for investors?

The article reports Glencore was nearing an agreement to merge with Xstrata in a deal estimated at about US$82 billion. That deal — which would add mines across Africa and Asia to Glencore — helped lift market sentiment for resource stocks according to the coverage.

Why did Lynas Corporation shares surge and what happened with its Malaysian rare earths plant?

Lynas jumped sharply after it was granted a temporary operating licence for its Malaysian rare earths plant despite some local opposition. The article notes Lynas’ shares rose to $1.58 on that licence news, making it the day’s top performer.

How did Qantas’ announcement affect its share price, and why is the fare rise relevant for investors?

Qantas shares rose after the airline announced it would raise fares on domestic and international routes in response to higher fuel costs and carbon pricing schemes in Australia and Europe. The article shows the market reacted positively to the move, sending the share price higher to reflect the company’s revenue response to rising costs.

What did Coles’ Christmas sales mean for Wesfarmers and the supermarket sector?

Coles reported its best-ever Christmas sales, contributing to a 7.3% rise in first-half sales to $17.5 billion, and the article notes Wesfarmers’ shares benefited on that news. However, RBS Morgans’ Bill Chatterton said the market reaction was muted because much of the positive news appeared already priced into Wesfarmers relative to Woolworths.

How did the broader market perform that day and what were the index moves on the ASX?

The article reports the S&P/ASX200 rose 42.1 points, or about 1%, to 4,267.8, and the All Ordinaries gained 42.2 points, or about 0.98%, to 4,333.2. Traders cited the positive overseas manufacturing data and the approaching local reporting season as reasons for the improved view of future earnings.

What happened at Westpac and how did investors react to the job cuts news?

The Finance Sector Union confirmed that 560 jobs were to go at Westpac, and the article reports Westpac’s share price rose to $20.92 on the day. The coverage links the confirmed job cuts with the bank’s market movement reported that session.