Hopes for continued demand for commodities from China lifts mining sector
With retailers turning in mixed performances after a raft of festive trading news, it is the mining sector which is helping to support the market.
Rio Tinto has risen 80.5p to 3334.5p after it said it expected to reach a production rate for iron ore of 290m tonnes a year by mid-2014, up 0% on last year, as it attempts to meet demand from fast growing China.
Mining companies have seen their share prices heavily influenced by whether or not China's economy is deemed to be surging ahead or slowing down.
So Rio's positive update - along with positive noises from Citigroup - has pushed the whole sector higher. Antofagasta has added 27.5p to 817.5p, Anglo American is up 24p at 720p and BHP Billiton is 66.5p better at £18.58. On Rio, Numis said:
Solid production numbers from Rio this morning and inline with guidance given at the recent investor day. Iron ore production was up 3% quarter on quarter to 266m tonnes. Copper was production was slightly ahead of guidance at 173,000 tonnes for the fourth quarter or 632,000 for the full year as Kennecott improves up and Oyu Tolgoi ramps up.
The company made $3bn of savings in 2013 which was in line with guidance given at the investor day on 3 and 10 December. The company is targeting another $2bn in cost savings in 2014. Net debt falls by $1.2bn after the Turquiose Hill rights issue. Rio is targeting significant debt reduction in 2014. The chief financial officer said that he expects net debt to be $19bn at the end of 2013 and would like to see it come down to $12-13bn which is a comfortable amount of debt to carry. Once the balance sheet is fixed Rio will be able to return cash to shareholders.
Overall, the FTSE 100 has edged up 2.04 points to 6821.90 as investors paused for breath after Wednesday's eight month high.
Among the many retailers reporting Halfords is 30.5p higher at 491.5p but Primark owner Associated British Foods has dropped 103p to £25.93. For ABF it was a weaker than expected performance from its sugar business which has left investors nervous, and Numis moved its recommendation from hold to sell.
Back with the risers, United Utilities is up 22p at 681p after Morgan Stanley lifted its recommendation from equal weight to overweight. It said:
The 2014 regulatory review will clearly be tough but this is surely well known. We expect clarity on allowed returns shortly, which should remove uncertainty, and we think fears of dividend cuts are overdone. United Utilities is our top pick – it trades close to regulated capital value and offers good value – hence we move to overweight.
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