Battered JSE can thank miners but look out for bumps ahead
JSE’s resources index is up 17.25% this year, compared to the all share index’s 9.51%. But cracks are emerging
Mining shares have consistently buoyed the JSE so far in 2019, but it is likely the rallies in the commodities that have made this possible will be short lived.
Palladium, iron ore, and oil have all helped the JSE’s resources index rise 17.25% this year, compared to the all share index’s 9.51%. But cracks are starting to emerge.
Palladium’s gains have been the most impressive, but the metal, used in vehicle-emissions technology, has caught the attention of speculators and is in bubble territory. Although palladium is not expected to crash, its price fell last week, snapping 13 weeks of gains for the JSE’s platinum index.
Iron ore’s rise continues, helped by shortages of supply due to the collapse of a tailings dam at Vale’s Corrego do Feijao iron ore mine in Brazil. This week Vale, the world’s largest producer, announced that it had failed to receive stability certificates for 13 other dams at the mine.
The second largest producers, BHP and Rio Tinto, were both hit last month by a cyclone in Australia which disrupted their operations, helping to further reduce global supply and increase prices. But a slowing global economy, and tensions between the US and China, could see a reduction in infrastructure spending and demand for steel.
The price of iron ore is still off a high reached in February, and some 45% below a 2013 peak.
Diversified miners have also benefited from a 28.33% rise in the oil price so far in 2019, but it is by no means clear that the hefty production cuts by oil cartel Opec will ensure reduced supply.
US shale producers have demonstrated their ability to ramp up production in the face of rising prices, despite supply concerns from Venezuela as well as looming sanctions on Iran.
All in all, shareholders in mining companies are always at risk of having their fingers burnt. This year seems no different.