A leading indicator for big mining companies has shifted to the verge of a ‘sell’ signal after three months in positive territory, London broker Liberum says.
The broker’s ‘restocking indicator’ signal has downgraded to a ‘hold’ after three at ‘buy’.
It uses a combination of ratios from the sub-indices of the Chinese steel purchasing managers’ index (PMI) to calculate buy or sell signals for the FTSE 350 Mining index on a one month view.
The overall China Steel PMI index rose from 45.4 to 46.1 on Monday, but this was due to an expansion in inventories and output, whilst both domestic and export order contracted faster.
Weakness in the book-to-build ratio and inventory ratio in the China Steel PMI data drove the signal down from 1.1 to 0.92, with anything above 1.1 being a ‘buy’ and below 0.9 a ’sell’.
“Iron ore prices have already seen a sharp selloff from the peak, but we believe there is still more downside to come and that we are closer to a tipping point in the equities as the global restock impact fades,” said Liberum analyst Ben Davis in a note to clients on Tuesday.