Miners extend rally after bullish Rio Tinto comments on China, copper

Mining companies extended their recent gains and lifted the market after bullish comments from sector titan Rio Tinto's chief executive about commodity prices and Chinese demand.

Talk of an "inflection point" for both commodity prices and the Chinese economy as a whole followed recent economic data and significant drawdowns in metal inventories from the London Metal Exchange and Shanghai warehouses.

Just before 1130 BST on Tuesday, Rio Tinto was up 1.2% to 2,386.5p, or 5% ahead of Friday's close; BHP Billiton was up 1.7% on the day and 5% since Friday to 1,040p; Glencore was up just over 1% on the day and over 8% since Friday to 198.7p; Anglo American up 0.6% on the day and 6% in the week to 865.9p.

“We can see an inflection point and we are going to make the most of it,” said Rio chief executive Jean-Sebastien Jacques, adding that the FTSE 100 company believed that from all the commodities it mines, copper would be the first to emerge from the present "twilight zone".

In an interview with Bloomberg TV overnight, Jacques said: “The drop that we had experienced for the last two or three years in China seems to have plateaued.

“We are becoming much more what I would describe as 'cautiously optimistic' in relation to China.”

This came not long after rival Glencore's CEO Ivan Glasenberg said the Chinese market looks “pretty good” in the long term.

Data from China this week showed evidence of a six-year high in house price growth, after other recent data revealed August's outperformance in investment, factory output and retail sales figures.

Credit agency Moody’s also recently upgraded its base metals view to 'stable' from 'negative'.

Analyst Josh Mahoney at IG said the improving Chinese data and Jacques' comments "served to solidify the growing feeling that we may have seen a bottom for commodity prices".

He added: "Despite improving data, the key question is whether such improvements are merely stimulus driven and as such unsustainable over the long term."

Broker SP Angel agreed that Jacques comments "support recent data which shows significant and somewhat unusual drawdowns in metal inventories from LME and Shanghai warehouses", which is further supported by a relatively firm summer for iron ore and steel prices and demand, with coking coal prices having also taken off.

"The buying activity may also be supported by action by the Chinese authorities to restrict lending to unprofitable and polluting local miners, cutting Chinese output of some ores and metals. We hear anecdotal evidence on this as well as some statistics on Chinese mine output," the SP Angel team said.

"Either way, the increase in demand from new housing and infrastructure construction in China is significant for both companies and most other miners."