The world's second and third biggest mining companies
respectively, Vale (
VALE
,
quote
) and Rio Tinto group (
RIO
,
quote
), are predicting Chinese growth (
FXI
,
quote
) will accelerate by the end of the year thanks to stimulus
spending.
[caption id="attachment_73471" align="alignright" width="300"
caption="Construction in Tianjin, China"]
[/caption]
The managing director of Rio's Australian business David Peever
said at a speech in the Australian capital of Canberra today
that, "There are some signs the slowdown may be reaching its
bottom.
"Rising infrastructure investment typically brings
a corresponding uptick in production within two to three
months."
Emerging Money co-founder and CNBC emerging markets contributor
Tim Seymour agrees that Chinese growth is set to rebound, noting
that,
"Vale is saying the same thing. They see the fourth quarter of
this year as a turn in the cycle, and China returning to the table
to buy core inputs such as iron ore and coking coal in
bulk. All of these stocks have had a good run and today is the
real test to see if they can bounce on 200mda.
"Lots of names in the resource sector were way overbought short
term, but are still under-owned and have room to go. The
fundamentals are actually providing the tailwind here, but the
technicals say be cautious."
Iron ore prices are rising
this week on signs of a pickup in China steel demand, reports
Reuters, bouncing back after hitting a three year low earlier this
month.
China's economic planning body recently announced
approvals for infrastructure projects including 25 subways and
13 highways
reports the
International Business Times,
after Chinese growth cooled to the slowest pace in three years. The
total size of the investment is estimated to be more than ¥1
trillion ($158 billion), roughly a quarter of the size of 2008's
global financial crisis stimulus package.
"The moves by the government to let the handbrakes off" and "the
announcements about investment in infrastructure are two good signs
we'll start to see some rebound in demand over comings months,"
Bloomberg reports Peever saying. The global economy is expected to
grow 3.3% this year, he said.
Rio Tinto is one of several mining companies that have
reassessed operations as Chinese growth (and corresponding demand)
from the commodity-hungry giant has softened in recent months.
BHP Billiton (
BHP
,
quote
) and Fortescue Metals (
FSUGY
,
quote
) are
planning to cut back spending
amid caution over the economic outlook for Asia, weak commodity
markets and rising production costs.
