We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Industrial metals such as iron, aluminum, copper are essential for most of the technology and infrastructure used in our daily lives. Thus, President Trump’s promise to invest heavily in infrastructure provided a boost to industrial metals prices. Growth in the U.S. GDP and continued improvement in end use sectors like automotive, aerospace, construction and packaging will sustain increased demand for metals.
Further, industrial metals have been benefiting from China’s drive to halt some of the metal’s production to fight air pollution. Let’s take a closer look at the price movement of a few important metals so far this year and what lies ahead.
Iron
Iron ore prices have been on a roller coaster ride so far this year. After marching toward a high of $95 per ton in Feb 2017, prices slumped to $57 per ton in June. Of late, prices have again picked up to the $70 per ton level in July.
China has been the primary catalyst for the recent surge in iron prices. Release of strong second-quarter GDP figures renewed optimism. The official sub-index for activity growth in construction sector hit 62.5 in July, the highest in almost four years. Also, tougher and more frequent environmental inspections on steel plants guilty of polluting have dented steel production and have impacted iron ore prices significantly.
Chinese traders are worried about a supply crunch and low stockpiles; consequently, imports have picked up. In the first six months, imports rose 9.3% to 539 million tons.
Aluminum
Aluminum industry fundamentals have improved considerably since 2016 and aluminum markets recorded supply deficit in 2016, the first in a decade. During the first six months of 2017, the average LME aluminum price touched USD 1,880.56 per ton, a 22% increase from the prior-year average.
Aluminum prices have been gaining this year owing to an improved supply-demand dynamics, the Trump win and higher coal prices. China’s directive towards capacity cut and Trump’s insistence on trade reforms have inflicted positivity in the market lifting aluminum prices.
Copper
After vastly underperforming compared with other metals in 2016, copper experienced a sudden spike at the end of 2016. Pick up in global manufacturing activity and hopes about Trump's $500 billion infrastructure drove the red metal’s recovery. Copper has gained 13% so far this year and is trading 28% higher than last year. Renewed optimism about economic strength in top consumer China and indications of tighter global mine supply aided prices.
Supply disruptions at some of the key copper mines including BHP Billiton Limited’s (NYSE:BHP – Free Report) Escondida mine in Chile earlier this year and strike action at Freeport-McMoRan Inc.’s (NYSE:FCX – Free Report) Grasberg operations in Indonesia led to the decline in mined copper production and provide a boost to the price.
Industry Positioning - Mixed Bag
The Zacks Industry Rank relies on the same estimate revisions methodology that drives the Zacks Rank for stocks. The way to look at the complete list of industries is that, we put our X industries (all 265 of them) into two groups: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
In the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. (To learn more visit: About Zacks Industry Rank)
Within the Zacks Industry classification, the Mining-Iron and Mining-Non Ferrous industries (aluminum, copper, etc.) are grouped under the Basic Material sector (one of 16 Zacks sectors). The non-ferrous mining industry, with a Zacks Industry Rank #123, remains in the top half. However, the iron mining industry occupies a space in the bottom 6% of the Zacks classified industries with a Rank of #241.
Improved Performance
In the past year, the Mining-Iron and Mining-Non Ferrous industries have recorded respective rise of 76.5% and 22.5%. The industries have outperformed both the Basic Material sector’s increase of 14.6% as well as the S&P 500’s corresponding advance of 13.5%.
Attractive on the Valuation Front
Valuation looks attractive for both the industries going by the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) multiple, a preferred valuation metric for cyclical industries like iron and non-ferrous industries. The mining-iron industry has a trailing 12-month EV/EBITDA multiple of 4.85 and the mining-ferrous industry has a trailing 12-month EV/EBITDA multiple of 8.65.
Both of these compare favorably with the broader Basic Materials Sector’s EV/EBITDA multiple of 11.49 and S&P 500 EV/EBITDA multiple of 10.81. Both of the industry’s lower-than-market positioning calls for more upside ahead.
Q2 Earnings Scorecard, Projections
So far, 60% of the S&P 500 members in the basic materials sector have reported second-quarter results and logged a 9.7% increase in earnings. Taking into account the rest of the companies that have yet to disclose numbers, earnings will rise 6.2% for the quarter. (Read more: Q2 Earnings Season Past the Halfway Mark)
What’s in Store?
Iron: Global steel production rose 4.5% year on year during the first six months of 2017 to 695 million tons. Despite contracting in June by 1.7% US steel output still grew 1.3% in the first half after two years of contraction as higher prices encourage the revival of idled plants. Strong steel demand growth in developing countries will offset stabilizing demand in developed economies. This will boost demand for iron ore.
The supply surge resulting from Vale S.A. (NYSE:VALE – Free Report) S11D, Rio Tinto plc’s (NYSE:RIO – Free Report) Pilbara projects, and BHP Billiton’s projects will create a surplus in the already well supplied iron ore market. However, China is planning to cut steel capacity to reduce pollution in the country and by 2020, the government aims to trim 100-150 million tons of steel capacity. Sustained capacity rationalization could lead to higher steel prices, which in turn should support iron ore prices.
Aluminum: Global aluminum markets are expected to be in a deficit in 2017. Chinese demand, which accounts for about half of the total demand, is likely to be sustained by the building and construction sector as well as the automotive and railway sectors. With the country deciding to cut capacity, supply will also be in check.
Moreover, in North America, demand should remain robust, mainly due to building and construction, automotive, packaging and airline industries. India appears promising given its current low levels of aluminum consumption and high urban population growth.
Copper: As per the International Copper Study Group (ICSG), copper is headed for a deficit of about 150,000 metric tons in 2017 and about 170,000 tons in 2018. Copper prices are likely to be influenced by demand from China and emerging markets, as well as economic activity in the U.S. and other industrialized countries.
The timing of the development of new supplies of copper, along with production levels of mines and copper smelters are also anticipated to influence price. The long-term fundamentals of the metal remain positive, supported by its significant role in the global economy and a challenging long-term supply environment.
Zacks Industry Rank
Within the Zacks Industry classification, health insurers are broadly grouped in the Medical sector (one of the 16 Zacks sectors).
We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. We put our X industries into two groups: the top half (industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by more than twice as much. The Zacks Industry Rank is #177 (bottom 34%). The ranking is available on the Zacks Industry Rank page.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year.See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Zacks Industry Outlook Highlights: BHP Billiton Limited, Freeport-McMoRan, Vale and Rio Tinto
For Immediate Release
Chicago, IL –August 04, 2017 – Today, Zacks Equity Research discusses the Industry: Industrial Metals, Part 1, including BHP Billiton Limited’s (NYSE:(BHP - Free Report) – Free Report), Freeport-McMoRan Inc.’s (NYSE:(FCX - Free Report) – Free Report), Vale S.A. (NYSE:(VALE - Free Report) – Free Report) and Rio Tinto plc’s (NYSE:(RIO - Free Report) – Free Report).
Industry: Industrial Metals, Part 1
Link: https://www.zacks.com/commentary/124071/industrial-metals-stock-outlook---aug-2017
Industrial metals such as iron, aluminum, copper are essential for most of the technology and infrastructure used in our daily lives. Thus, President Trump’s promise to invest heavily in infrastructure provided a boost to industrial metals prices. Growth in the U.S. GDP and continued improvement in end use sectors like automotive, aerospace, construction and packaging will sustain increased demand for metals.
Further, industrial metals have been benefiting from China’s drive to halt some of the metal’s production to fight air pollution. Let’s take a closer look at the price movement of a few important metals so far this year and what lies ahead.
Iron
Iron ore prices have been on a roller coaster ride so far this year. After marching toward a high of $95 per ton in Feb 2017, prices slumped to $57 per ton in June. Of late, prices have again picked up to the $70 per ton level in July.
China has been the primary catalyst for the recent surge in iron prices. Release of strong second-quarter GDP figures renewed optimism. The official sub-index for activity growth in construction sector hit 62.5 in July, the highest in almost four years. Also, tougher and more frequent environmental inspections on steel plants guilty of polluting have dented steel production and have impacted iron ore prices significantly.
Chinese traders are worried about a supply crunch and low stockpiles; consequently, imports have picked up. In the first six months, imports rose 9.3% to 539 million tons.
Aluminum
Aluminum industry fundamentals have improved considerably since 2016 and aluminum markets recorded supply deficit in 2016, the first in a decade. During the first six months of 2017, the average LME aluminum price touched USD 1,880.56 per ton, a 22% increase from the prior-year average.
Aluminum prices have been gaining this year owing to an improved supply-demand dynamics, the Trump win and higher coal prices. China’s directive towards capacity cut and Trump’s insistence on trade reforms have inflicted positivity in the market lifting aluminum prices.
Copper
After vastly underperforming compared with other metals in 2016, copper experienced a sudden spike at the end of 2016. Pick up in global manufacturing activity and hopes about Trump's $500 billion infrastructure drove the red metal’s recovery. Copper has gained 13% so far this year and is trading 28% higher than last year. Renewed optimism about economic strength in top consumer China and indications of tighter global mine supply aided prices.
Supply disruptions at some of the key copper mines including BHP Billiton Limited’s (NYSE:BHP – Free Report) Escondida mine in Chile earlier this year and strike action at Freeport-McMoRan Inc.’s (NYSE:FCX – Free Report) Grasberg operations in Indonesia led to the decline in mined copper production and provide a boost to the price.
Industry Positioning - Mixed Bag
The Zacks Industry Rank relies on the same estimate revisions methodology that drives the Zacks Rank for stocks. The way to look at the complete list of industries is that, we put our X industries (all 265 of them) into two groups: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
In the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. (To learn more visit: About Zacks Industry Rank)
Within the Zacks Industry classification, the Mining-Iron and Mining-Non Ferrous industries (aluminum, copper, etc.) are grouped under the Basic Material sector (one of 16 Zacks sectors). The non-ferrous mining industry, with a Zacks Industry Rank #123, remains in the top half. However, the iron mining industry occupies a space in the bottom 6% of the Zacks classified industries with a Rank of #241.
Improved Performance
In the past year, the Mining-Iron and Mining-Non Ferrous industries have recorded respective rise of 76.5% and 22.5%. The industries have outperformed both the Basic Material sector’s increase of 14.6% as well as the S&P 500’s corresponding advance of 13.5%.
Attractive on the Valuation Front
Valuation looks attractive for both the industries going by the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) multiple, a preferred valuation metric for cyclical industries like iron and non-ferrous industries. The mining-iron industry has a trailing 12-month EV/EBITDA multiple of 4.85 and the mining-ferrous industry has a trailing 12-month EV/EBITDA multiple of 8.65.
Both of these compare favorably with the broader Basic Materials Sector’s EV/EBITDA multiple of 11.49 and S&P 500 EV/EBITDA multiple of 10.81. Both of the industry’s lower-than-market positioning calls for more upside ahead.
Q2 Earnings Scorecard, Projections
So far, 60% of the S&P 500 members in the basic materials sector have reported second-quarter results and logged a 9.7% increase in earnings. Taking into account the rest of the companies that have yet to disclose numbers, earnings will rise 6.2% for the quarter. (Read more: Q2 Earnings Season Past the Halfway Mark)
What’s in Store?
Iron: Global steel production rose 4.5% year on year during the first six months of 2017 to 695 million tons. Despite contracting in June by 1.7% US steel output still grew 1.3% in the first half after two years of contraction as higher prices encourage the revival of idled plants. Strong steel demand growth in developing countries will offset stabilizing demand in developed economies. This will boost demand for iron ore.
The supply surge resulting from Vale S.A. (NYSE:VALE – Free Report) S11D, Rio Tinto plc’s (NYSE:RIO – Free Report) Pilbara projects, and BHP Billiton’s projects will create a surplus in the already well supplied iron ore market. However, China is planning to cut steel capacity to reduce pollution in the country and by 2020, the government aims to trim 100-150 million tons of steel capacity. Sustained capacity rationalization could lead to higher steel prices, which in turn should support iron ore prices.
Aluminum: Global aluminum markets are expected to be in a deficit in 2017. Chinese demand, which accounts for about half of the total demand, is likely to be sustained by the building and construction sector as well as the automotive and railway sectors. With the country deciding to cut capacity, supply will also be in check.
Moreover, in North America, demand should remain robust, mainly due to building and construction, automotive, packaging and airline industries. India appears promising given its current low levels of aluminum consumption and high urban population growth.
Copper: As per the International Copper Study Group (ICSG), copper is headed for a deficit of about 150,000 metric tons in 2017 and about 170,000 tons in 2018. Copper prices are likely to be influenced by demand from China and emerging markets, as well as economic activity in the U.S. and other industrialized countries.
The timing of the development of new supplies of copper, along with production levels of mines and copper smelters are also anticipated to influence price. The long-term fundamentals of the metal remain positive, supported by its significant role in the global economy and a challenging long-term supply environment.
Zacks Industry Rank
Within the Zacks Industry classification, health insurers are broadly grouped in the Medical sector (one of the 16 Zacks sectors).
We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. We put our X industries into two groups: the top half (industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).
Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by more than twice as much. The Zacks Industry Rank is #177 (bottom 34%). The ranking is available on the Zacks Industry Rank page.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year.See these high-potential stocks free >>.
Get the full Report on BHP - FREE
Get the full Report on FCX - FREE
Get the full Report on VALE - FREE
Get the full Report on RIO - FREE
Follow us on Twitter: https://twitter.com/zacksresearch
Join us on Facebook: https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com/
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.