The global resources sector is benefiting from increasing consumer confidence, according to Andrew M...
The global resources sector is benefiting from increasing consumer confidence, according to Andrew Milligan, head of global strategy at Standard Life Investments.
He points to the fact that resources made up some of the best performing sectors in the UK for the year to 26 March.
From the start of the year, the FTSE All-Share steel and other metals index was up 21.53%, making it the top-performing sector in the All-Share over that time period, while the oil and gas index was up 11.79%, making it one of the top 10 best performers.
Milligan sees a strong link between the economy picking up and demand for resources feeding through to better performance.
In the US, materials were the best-performing sector for the first quarter of this year. Milligan says that although much of this is down to the hike in oil prices, strong performance across different resources shows that the global recovery should continue to benefit these areas.
As evidence, he points to the CRB index that is calculated based on the prices of 17 commodities from cocoa and orange juice to gold. It rose from 185 to 195 in the last quarter of 2001 and had increased to 202 by mid-March.
The price of gold is another important indicator of what the world economy is doing, he adds. It was $298 per ounce towards the end of March, while at the end of last year it hovered around the $275 mark.
John Smelt, head of global resources at Aegon Asset Management, also sees resources as an area that performed well over the last few months and believes it still has further to go. He says: 'The outlook for coal and iron ore is fairly good. Negotiations on setting supply levels went well and production has been better than anticipated.'
He is not overly bullish, however, pointing to the fact that inventories are weak and that there has not been much of an industrial pick up as yet. Smelt points out that resources are fairly well priced and demand is dependent on strong manufacturing, which is not there yet.
Metals indices have been making a comeback after suffering badly in the downturn of last year, says Milligan. They were down 30% year on year at the end of the third quarter last year, while they were only down about 10% from this time last year.
Milligan puts part of the turnaround in prices down to stronger US auto sales. But he believes stronger consumer spending in general is an important factor in the better fortunes for resources.
He says: 'Most forms of consumer spending involve the use of resources to some extent. Strong demand for housing leads to higher demand for copper for piping and a number of other materials.'
An example of a company that is benefiting from these strong prices is Xstrata, says Smelt.
The company, formerly based in Switzerland, listed on the London stock exchange in March.
In the largest listing since Friends Provident last summer, the mining company listed at £8.70 and was at more than £10 by 25 March.
Consumer confidence boosting commodities.
Gold and other prices have risen.
Resources one of best performers of Q1.
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