Commodities boom helps FTSE extend its gains, BHP unveils record first half dividend

“The FTSE 100 followed up Monday’s massive gains with a more modest advance as commodities surged amid hopes for a big recovery in demand as vaccines help unlock global economies,” says AJ Bell Investment Director Russ Mould.

“Investors will be watching Boris Johnson’s scheduled statement on the easing of coronavirus restrictions closely when it is delivered at the beginning of next week but in the absence of solid news on the pace at which lockdown will be loosened, the market has decided to put on a happy face and hope for the best.

“News of falling infection rates in the US is helping to feed the optimism as the Biden administration inches towards getting its $1 trillion-plus Covid relief package through Congress.

“The only creeping nervousness at present appears to be around the prospects for significant inflation driven by a combination of the emergence from Covid, generous stimulus packages and rising raw materials costs.”

BHP/Glencore

“While a bump in the oil price has given Royal Dutch Shell and BP a lift recently, the divergent fortunes in the resources sector between oil and gas firms and miners is evident in the record first half dividend paid by BHP not too long after the oil majors had slashed their own payouts

“Now the most valuable company on the FTSE 100, BHP and other companies focused on metals and minerals, like Glencore which resumed its own dividend today, are potential beneficiaries rather than the potential victims of an energy transition which the traditional oil firms appear to be.

“That’s because the commodities they mine and trade are required to build the wind turbines and electric vehicle components required if the world is to wean itself off fossil fuels.

“In the near term, miners may enjoy some additional benefit as global governments attempt to boost their recoveries from the pandemic by investing in large infrastructure projects.

“BHP has already benefited hugely from Chinese demand for iron ore, a key component in the manufacture of steel.

“The caveat with BHP is that it has its own large petroleum business, while this has proved to be a benefit during oil’s recent rally, it could become a fly in the ointment in the future.

“Glencore also has exposure to oil and coal which contributed to a pretty mixed set of full year results, with big trading profit but a drop in overall revenue. The big development, which paved the way for the reinstatement of the dividend, was a material reduction in debt.”

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