On Monday, the price of a China-bound metric ton of iron ore rose 19 per cent. Spot prices for copper and nickel have been steadily rising in March. Shares in Anglo American (AAL), which Moody's downgraded to junk just a month ago, have more than doubled since the stock market's nadir on 20 January. In that time, BHP Billiton (BLT) and Rio Tinto (RIO), neither quite as indebted as Anglo though both still painfully affected by the rout in commodities markets, have gained 32 and 23 per cent, respectively.
Investors can be forgiven for wondering whether this means the miners' fortunes have turned.
Glencore (GLEN) chief executive Ivan Glasenberg suggested as much last week when he told reporters he thinks commodity markets have bottomed. For proof, Mr Glasenberg need only check the 80 per cent increase in the value of his multi-billion stake in the group since the end of January.
There are several reasons for the improved sentiment. Firstly, the precipice several miners appeared to be approaching at the beginning of this year now seems to have receded from view, thanks to a raft of self-help measures. Anglo is dispensing with everything but copper, platinum and diamonds. Glencore is flogging assets, restructuring its debts and is committed to reducing gearing. Others have increased cuts to capital expenditure in an effort to guarantee positive cash flow at current prices. Markets - which are still adjusting to the sector's lighter dividend commitments - have warmed to greater clarity around earnings and balance sheets.
Then there is China. Monday's record spike in iron ore prices followed comments from Chinese policymakers suggesting they may be prepared to bolster economic growth. Futures markets play a big part in setting prices, but so do supply-demand fundamentals. On Wednesday, the Financial Times suggested the jump in prices may also have been precipitated by the impending forced closure of steel mills in preparation for a flower show in Tangshen.
Indeed, the fundamentals suggest there is still huge oversupply in steel markets. Large cutbacks may have been announced, but many projects will take time to unwind. And broader economic indicators from China do not bode well. In February, exports fell 25 per cent year on year, while imports dropped 14 per cent, which HSBC interpreted as signals of a much wider malaise in the economy.
Markets are evidently waiting for the commodities slump to end with bated breath, as there could be a lot of money to be made if the fundamentals improve. But it's worth remembering the outlook given by BHP's board just a fortnight ago when it said "the period of weaker prices and higher volatility will be prolonged".
