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Mining stocks rally puts FTSE 100 near record close

The FTSE 100 was within touching distance of a closing high on Wednesday, as optimism about the outlook for metal prices lifted the shares of the heavyweight miners on Britain’s blue-chip index.

On the market’s first day back after the Christmas holiday, the FTSE 100 was up 0.6 per cent at 7107.56 in early afternoon trading, putting it on track to surpass its closing high of 7103.98 set in April 2015.

As they have done for much of the year, mining stocks did the heavy lifting.Anglo American shares rose 2.7 per cent to 1,156p, while those of the world’s largest mining company, BHP Billiton, climbed 4.1 per cent to 1,309p.

“The FTSE is boosted by higher oil prices supporting the commodities space,” according to Mike van Dulken, head of Research at Accendo Markets.

Industrial metals are headed for their first annual gain in four years and their biggest advance since 2010, as stronger than expected growth in China and supply cuts pull them from a severe downturn. The London Metal Exchange index of six metals has returned 21 per cent this year.

On Wednesday, the price of copper rose 1.6 per cent to $5,553.5 a tonne on the LME. After lagging behind for most of 2016, copper — a key industrial metal used in wiring — has been the best performer this quarter with a 14 per cent gain.

The UK’s main equity market barometer has also been helped by the pound, whose weakness has helped polish profits of those multinational companies that have earnings in dollars. Sterling has fallen more than 16 per cent against the dollar since the UK voted for Brexit in late June.

The rally in metal prices is likely to be sustained into the first half of next year, according to analysts, as China looks to maintain economic steady growth.

“Global manufacturing continues to recover, while the Chinese government has repeated their desire for market stability, which necessitates ongoing focus in infrastructure spending,” analysts at Macquarie said.

Further stimulus in China has supported property and infrastructure investment, buoying demand for metals. At the same time, efforts within China to address excess supply have helped limit the output of commodities such as zinc. The zinc price has soared more than 60 per cent this year — its best performance since 2009.

The performance of metals this year marks a sharp reversal from 2015, when the LME Index of metal prices plunged a fifth, sending miners into survival mode as their share prices plummeted.

In the oil market, thin trading ahead of the new year holiday this weekend helped send the global benchmark Brent crude higher by 40 cents to $56.49 a barrel. US marker West Texas Intermediate rose 34 cents to $54.24 a barrel.

Oil market participants await the start of a deal reached by Opec and several countries outside the cartel to cut production, which is set to begin on January 1. While Opec and Russia have a long history of failing to implement output targets, it will take weeks to evaluate compliance with the first joint deal to ease a supply glut since 2001.

Gulf Opec producers, including kingpin Saudi Arabia, have already told buyers of their oil to expect cuts to supplies. Venezuela, one of the country’s worst affected by the two-year oil downturn, said this week it would cut 95,000 barrels a day of production in the new year. The first meeting of a monitoring committee including big producer nations will take place next month.

Libya and Nigeria, which were exempt from the supply deal because of armed conflict, has curbed their output this year and only increased their production of late. Libya’s crude output has risen to more than 600,000 b/d after the restart of some fields, the country’s national oil company has said.

Oil prices have risen more than 20 per cent since Opec agreed to cut production last month.

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