The mining sector on the FTSE 100 is made up of some of the index’s most volatile shares. Various factors cause rapid movements in the sector, notably fluctuations in the prices of the commodities associated with each company, the perceived health of the world economy and individual company news.
As many of the major mining companies are involved in the production of metals, movements in the metal markets are probably the most direct factor affecting the intra-day prices of mining shares. Kazakhmys is a large copper producer and is therefore particularly sensitive to fluctuations in the price of that metal, while Randgold Resources’ shares tend to benefit from inflated gold prices. However, most of the FTSE’s mining businesses are fully diversified, mining a range of different metals and minerals and therefore have stakes in the value of a variety of commodities.
While the short-term direction of the mining sector and its constituents can be traced to metal prices, the overall health of the worldwide economy often sets longer-term trends. The global recession affected the sector dramatically as metal-reliant infrastructure projects in the US and developing nations such as China and India were put on hold. However, mining firms have recovered dramatically over the past months and increased demand from China would help continue this trend.
The globalised nature of mining enterprises means takeover bids between rivals are fairly common and these can have a large impact on share prices in the sector. A notable example came a year ago with BHP Billiton’s attempted takeover of Rio Tinto; when the bid was eventually scrapped due to the poor state of the economy, Rio’s share price plummeted 40%. There has recently been speculation that BHP might be preparing to launch another bid for its rival. This would undoubtedly have an effect on the share price of both companies, as well as having a knock-on effect across the sector.
Spread bet on entire sectors or individual equities
With an IG Index account you can take a position on the mining sector as a whole – one of the 35 sector bets we offer – to gain precise exposure to the areas of the market you want. For example, if you believe an index is set to rise, but think that one constituent sector will fall, you can maximise your profit and ‘buy’ the index but ‘sell’ the sector.
Alternatively, if you simply want to spread bet on individual shares, you now pay even less deposit to open a position. You can take a position on shares such as Rio Tinto, Xstrata and BHP Billiton with deposit requirements from just 10%.
Updated: 09/11/09
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.