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Baltic dry on the rise, highlighting bullish case for mining stocks


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BG_mining_iron_23-4923948.pngSource: Bloomberg
 
 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Wednesday 21 December 2022 

Capesize and Baltic Dry highlight growing commodity demand

The Baltic Dry index has reached a fresh two-month high today, building on a recovery that has taken shape since the bottom in mid-November. Meanwhile, we have also seen significant gains for the Capesize index, which tracks iron ore and coal cargos of 150,000 tonnes. The capsize index has reached a five-month high, off the back of growing cargoes out of Brazil, West Africa, and North Atlantic. This pop in demand for ships does highlight an improving environment for commodities, coinciding with the Chinese move to relax their zero-covid restrictions. While there are claims that Chinese Covid cases are soaring, we have seen the reporting of numbers deteriorate, likely reflecting the drop in required testing. Nonetheless, unless we see any shift in tone to reflect a willingness to reinstate restrictions to combat these cases, commodity stocks look primed for a period of strength.

Balticdry211222.PNGSource: TradingView

FTSE 350 miners on the rise

While there are a number of ways to play commodity stocks, the FTSE 350 mining sector does do a good job of covering a wide range of stocks related to the sector. The chart below highlights how we have seen the sector complete a double bottom formation last month. With the neckline of that pattern now providing support as seen last week, we look primed for a period of strength for the index.

MINING-Weekly-2022_12_21-15h40.pngSource: ProRealTime

On the daily timeframe, we can see how price is now on the rise after a fall into the 10487 level. With that in mind, long positions are favoured, with a drive through the early-December peak of 11237 bringing a signal that we are set for another leg higher here. As such, bullish positions are favoured on a break through 11237, with a break back below the 10487 swing-low required to negate this view.

MINING-Daily-2022_12_21-15h44.pngSource: ProRealTime
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