Goldman Sachs said the current level of spot prices for most exchange-traded metals had run ahead of short-term fundamentals, with only copper expected to achieve a higher average price next year. Other base metals are vulnerable to a correction in coming months, with average prices for 2010 likely to come in below current spot prices. Given this risk, volume growth is likely to become an increasingly important, as it could help offset the influence of near term price corrections and the resulting weakness in market sentiment.
"Delivery of volume growth should help to reduce the negative impact of the near-term decline in certain commodity prices we expect," the broker said. It added that, of the mining stocks it followed, Vedanta stood out with "unrivalled" growth prospects, and revenues forecast to rise by 174 per cent from 2008 to 2013.
Goldman said Antofagasta, which rose 6p to 936.5p, Xstrata, up 12p at 1148p, and Anglo American, up 9p at 2721p, were the "best of the rest", although it moved Anglo from "buy" to "neutral". "At present, the volume growth we expect in 2011 and beyond appears relatively fairly priced [at Anglo American]," it said. Vedanta, which was upped from "neutral" to "buy", closed 59p higher at 2445p.
The wider mining sector was also firm, as weakness in the US dollar continued to support commodities such as copper and gold, with the Eurasian Natural Resources Corporation climbing 16.5p to 915.5p. The platinum producer Lonmin, which was upgraded to "buy" at Investec, was among the strongest of the blue chips, rising by 60p to 1911p, while Rio Tinto gained 82p to 3292p and BHP Billiton ended 19p higher at 1942p. "We do see a risk that the recent platinum price rally could reverse," Investec said. "However, we believe the market is looking through near term issues and is valuing Lonmin on its long-term potential."
Overall, the strength in the mining sector helped the FTSE 100 to hold on to Tuesday's gains, with the index edging up by 15.22 points to 5,327.39. The FTSE 250 was also firm, rising by 33.93 points to 9,169.04.
David Jones, chief market strategist at City spread-betting firm IG Index, said lack of direction appeared "to be a combination of the perennial struggle between the bulls and the bears and the fact that markets are quietening down before the festive season". The miners offset losses elsewhere, most notably in the banking sector, where Royal Bank of Scotland fell by 2.1 per cent or 0.715p to 33.55p, amid worries that the company might struggle to maintain its competitive position if the Government takes control of bankers' bonuses.
Other banks, although firmer at the end of the day than during morning and early afternoon trading, were also unsettled, with traders focusing on a cautious Credit Suisse circular. The broker said UK banks were "still not cheap enough", spooking investors across the sector, with Lloyds Banking Group, for instance, declining by 1.04p to 53.1p. Barclays was also held back, easing by 1.45p to 297.5p.
"Investors wanting exposure should buy Barclays, but even here we believe market estimates remain too high," Credit Suisse said. Standard Chartered ended the day 10p weaker at 1551p, and HSBC lost 3.3p to 722.7p. Elsewhere, Credit Suisse was positive on the telecoms group Vodafone, which rose by 3.05p to 143.05p after the broker revised its target price for the shares from 150p to 160p.
"The stock remains at the low end of its historic price-to-earnings trading range and has yet to reflect a cyclical recovery which is already priced in to the rest of the stock market," the broker said, sticking to its "outperform" stance.
Also on the upside, Evolution supported sentiment around the energy services group Amec, which rose by 17.5p to 829p after the broker upped its stance to "buy" ahead of the release of Vision 2015, the company's new five-year strategy, which is due to be outlined at the end of this week.
Further afield, Informa was hit by a round of profit taking, declining by 10p to 296.4p as Panmure Gordon weighed in on its decision to end talks about a potential acquisition of the German publisher Springer Science and Business Media. Repeating its "buy" recommendation, the broker said Informa's move was "the optimal outcome" and reminded investors that, on its estimates, a deal would have entailed a significant fund-raising, higher leverage and possible regulatory risk for the media group.
Profit taking was also in evidence around the fund manager Aberdeen Asset Management, which fell by 1.6p to 137p despite words of support from Numis and Altium. Numis raised its target for the stock to 165p from 155p previously, while the latter upped its stance to "buy". "In our view, the outlook for organic growth has improved due to the changing fund flow outlook and the focus on costs," Altium said. It also saw potential for acquisitions that would enhance Aberdeen's earnings.
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