Mining stocks surge as end of commodity rout called

Morgan Stanley sees a sharp reversal in commodities with prices rising nearly 20% by 2017 making mining stocks historically attractive

Investors returned to the metals and mining sector in a big way on Wednesday after an analyst report called a bottom in the commodities rout.

On the Comex market in New York copper for delivery in December climbed 1.7% to a three-week high of $2.3960 or $5,280 a tonne before paring some of the gains in afternoon trade. The red metal is up more than 6% from a six-year low hit at the end of September.

The benchmark price of iron ore also advanced on Wednesday to exchange hands for $54.50 extending the steelmaking raw material's bull run since hitting record lows in July. Iron ore is up 24% from the trough staying above the $50 a tonne level for the last 12 weeks.

Iron ore and copper are seen as bellwethers for the mining sector and today's rally comes on the back of a positive research note from Morgan Stanley quoted in the Wall Street Journal.

The investment bank believes that the tide is turning for beaten down commodities and the worst may be over mining stocks that have seen valuations drop dramatically since the start of the year.

[Morgan Stanley analysts] see commodity prices rising 19% by 2017, adding this “would be a sharp reversal from the experience in the last 18 months.” Equities exposed to the sector, they said, will likely outperform.

“Emerging markets and China in particular remain key to commodities demand. In the next few months we expect the perception around this demand to improve. In particular the acceleration of financial and administrative stimulus policies in China in recent weeks should start to feed through in both actual activity levels and equity market expectations,” they wrote.

The comments led to a broad advance among mining's heavyweights led by two of the biggest losers this year – Glencore and Anglo-American.

Glencore (LON:GLEN) jumped  as much as 11% in London on Wednesday and after a week of solid gains the counter has now wiped out its record 30% drop to an all-time low last week Monday.

The Swiss mining and trading giant  unveiled a $10 billion debt reduction program that includes asset divestments, stake sales in its agriculture business and new share offerings to assuage investors worried about its liabilities of $30  billion.

Glencore announced it's closing its Eland platinum mine in South Africa and is also said to be close to finalizing a $1.5 billion gold streaming deal for its South American copper mines.

Anglo American (LON:AAL) shares surged 11.6% in New York trimming year to date declines to 44% thanks to stock upgrade from Morgan Stanley.

Freeport-McMoRan (NYSE:FCX), which vies with Chile's state-owned Codelco as the world's number one copper miner in terms of output, closed up 10%, a second day of huge gains after the Phoenix-based company announced a restructuring effort that could include the sale of its oil and gas arm.

Shares in world number one BHP Billiton (NYSE:BHP) gave up some the day's gains to end 4% in New York, but the counter is up 12% over the last week. 

The Melbourne-based company which relies on oil and iron ore for the bulk of its earnings was also buoyed by a move back above $50 a barrel for crude on Wednesday.

The world's second largest miner based on revenue Rio Tinto (NYSE:RIO) added 7.8% in New York. The Melbourne-HQed firm has outperformed its peers, limiting year-to-date declines to 17%, as it slashes costs and benefits from a relatively strong iron ore price, responsible for the vast majority of its earnings.