Resource Stocks Rebound

The Age

Friday April 16, 1999

LEONIE WOOD and BARRY FitzGERALD with BLOOMBERG

Australian institutions joined the overseas-led charge into resource stocks yesterday, punting from their short position in leading issues that global commodity prices had turned from their historic lows.

The scramble by local institutions for resources scrip, following an insatiable appetite in recent weeks for major commodity stock exposure from their sharper overseas counterparts, underpinned share-price gains for leading local resources stocks yesterday.

If it were not that the resource stocks are coming off a distressed share-price base, investors could be forgiven for thinking that resource investment was now the new game in town, pushing aside the action in telcos and other service-related industries.

In local markets, BHP led the pack yesterday, rising 92.6 cents, or 6.3 per cent, to $15.55 - the highest level since July. The group's new managing director, Mr Paul Anderson, might think yesterday's gain was his work. But it had more to do with the improved sentiment towards the group's key commodities of oil and copper.

The broader appeal of the turn in commodity prices washed off on Rio Tinto, which added $1.01 to $24.29, indicating a 12 per cent increase since 1 April. The nickel/gold/alumina and uranium producer WMC rose 30 cents to $5.27.

WMC's retiring chairman, Sir Arvi Parbo, told yesterday's annual meeting in Melbourne that there were some signs that ``the worst of the present downturn may be over".

``One reason for guarded optimism is that stocks of most metals are relatively low, compared with annual consumption," Sir Arvi said. ``This offers some hope of a quick recovery once the markets begin to improve."

Said Mr Jim Reid, head of resource stocks at Equitilink Australia: ``This is the sort of day you yearn for. Resources typically have one great year in five, and I think we're heading for that year now."

Brokers said the buying orders were widespread and persistent, and reflected strong interest from locals and from overseas. Sir Arvi, with more than 40 years' experience in minerals, warned it was not possible to predict the timing of an improvement in global markets.

Yesterday's buying spree began earlier this week in the US among paper and pulp companies after International Paper reported surprisingly strong March-quarter profits, led by higher paper prices and firmer demand in Asia. Brokers immediately lifted their profit forecasts for IP by 20 per cent.

US brokers then reported investors trading out of technology-based stocks into the unloved cyclicals as investors bet US economic strength would continue to offset the weakness in Asia. Shares in the construction equipment group Caterpillar jumped 11 per cent. Du Pont chemicals also rose strongly, and the buying spread to resource stocks. -- with BLOOMBERG