Proactive Investors - Mining giants were early risers Monday as China removed the entire tax rebate (13%) for copper and aluminium semi-finished exports, but the brakes could be put on the sector in coming months from the stronger US dollar.
US investment bank Citi noted that Beijing's decision on Friday caused LME aluminium prices to surge by over 7%.
”The removal is expected to disincentivize semis exports from China, particularly aluminium, driving up LME/ShFE ratio initially. However, we don’t see all of this strength lasting.
“Indeed, we maintain our 0-3pt price unchanged at $2,600/t (4Q24 average $2,500/t) as we think the bullishness from the tax rebate removal could dissipate, that tariff fears will increase over the coming weeks, and as our base case is for a resolution regarding Guinea bauxite shipment issues.”
Citi also noted that historically a strong dollar has been a drag on miners as it reduces the purchasing power of key commodity-consuming markets.
“In addition, a stronger US$ typically results in tightening global monetary conditions.”
“Both these factors usually work against mining stocks. In fact, in the last week, strength in the US$ index following the US election outcome coincided with weakness in mining equities. “
“Our analysis of the last 20+ years’ data suggests a negative relationship between dollar strength and miners’ share price performance
“The correlation between commodities and US$ (6-months rolling) has remained negative and is approaching its LT avg of -0.3.”
Rio Tinto (LON:RIO) Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF), one of the world's biggest copper and aluminium suppliers, was up 1% at 4,857p.