Will Glencore PLC, Rio Tinto plc And Anglo American plc Continue To Storm Higher?

In the last month these three companies have seen investors flock to them and invest heavily. All three stocks have seen great rises, but the jury is still out.

Are we watching a dead cat bounce or have we seen the lows in commodity prices? This is the question facing investors and traders around the world, any investor catching the recovery at the right time could make huge returns but is this the time to buy?

Rallying share prices

In the last month alone Glencore (LSE: GLEN) and Anglo American (LSE: AAL) shares are both up by over 30% with Rio Tinto (LSE: RIO) up just over 3%. Shares have actually fallen in the last few sessions after huge rises in the last two weeks, so it could be the time to buy. After the terrible year miners had last year it’s no surprise that contrarian investors have been buying the stocks looking for a bounce.

Sentiment in the sector has shifted over the last six weeks, now money is beginning to flow back into mining shares that offer value. Miners have set out ‘strategic plans’ in order to decrease debt, decrease costs and increase cash flow and profit. These plans have acted as catalysts and have lured investors back to the sector. 

Commodities bouncing

Global commodity prices have bounced recently, but this may not be a response to supply and demand. Many experienced analysts believe this has been a ‘short covering’ rally or a ‘technical bounce’. The rise in commodity prices gives the picture that commodity markets are re-balancing, but the world still remains heavily oversupplied in key commodities. Although this offers some short-term respite for producers, it is still a worrying picture. 2016 could be a very challenging year for mining companies as well as other natural resource producers. 

Global headwinds

China is still a major problem for the global economy — its economic growth rate is falling and the country can no longer be relied upon to consume most of the world’s raw materials. There is no doubt that the economy is slowing in China and that will have huge knock on effects around the world.

In the worst case scenario there may be a surplus of oil and other commodities for years to come. However, if Chinese growth can be maintained at around 6.5% then there is scope for a commodity rally, as many people are pricing in the worst case scenario. China will be absolutely key and must be watched very closely. 

Long-term Investments 

Glencore seems to be the pick of the bunch in the sector due to the aggressive debt reduction program which has been very well received by the market. The size of the company also opens the door for multi-bag returns if commodity prices continue to rise through 2016 and 2017. The strong performance of the shares this year shouldn’t put investors off buying the shares and I believe it could go on to post huge returns this year and for future years. 

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Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.