Vale Paces Best Metal Stock Rally Since 2008 as China Woes Ease

Updated on
  • The biggest iron-ore miner is surging the most since 1999
  • Mining and metals index still down about 30% in the past year

Cliffs Natural Resources Inc., Vale SA and U.S. Steel Corp. paced the biggest weekly rally in seven years for mining and metals shares as investors wagered that a rebound in prices and efforts to cut spending and debt will return them to profitability.

The BI Metals Mining and Steel Aggregate Index of 47 producers rose 18 percent this week. Copper suppliers Freeport-McMoRan Inc. and Teck Resources Ltd. were also among the biggest gainers. Copper climbed to the highest in about four months on speculation top user China will announce more steps to bolster growth.

Vale’s 45 percent rally is the Rio de Janeiro-based company’s steepest weekly advance since 1999, as iron ore prices extended a rebound and Brazilian stocks jumped on bets that a political gridlock in the country may be closer to ending. Anglo American Plc capped its seventh straight gain, the longest winning run in two years.

The mining and metals index is still down about 18 percent in the past year after commodity prices collapsed as a sharper-than-expected slowdown in Chinese demand coincided with rising supply, creating gluts. Producers have been selling assets and cutting capital expenditure to prop up their balance sheets.

“We see a stabilization in commodity prices, capex has been reduced, new projects delayed and some have even reduced output,” Patrik Kauffmann, who helps manage $11 billion of assets at Solitaire Aquila Ltd., said from Zurich. “This means we will see a shortage in the future, or at least the oversupply going away, helping prices to recover.”

Copper for delivery in three months climbed 3.6 percent to settle at $5,027.50 a metric ton on the London Metal Exchange. The metal added 6.8 percent this week, the biggest such advance since December 2011. Prices rose a fourth day, the longest run since October, and all of the main contracts gained on the London Metal Exchange.

U.S. Steel surged after the U.S. government announced a second round of tariffs on steel imports that had flooded the domestic market. The Pittsburgh-based company extended a weekly gain to 56 percent, the most since Bloomberg records begin in 1991. Cleveland-based Cliffs jumped 59 percent, also the most ever.

“The path of least resistance for domestic sheet prices appears to be to the upside,” Anthony Rizzuto, a New York-based analyst at Cowen & Co., said in a note, citing the government’s preliminary decision and steel price increases announced by some producers.

— With assistance by Luzi-Ann Javier, and Agnieszka De Sousa

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