UPDATE: Material Stocks Soar As China To Ease Currency Peg

21st Jun 2010 17:21

(Updates with more comments, coal industry's rise, fresh share prices.) By David Benoit Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Material stocks, particularly those most closely tied to the world-wide economy, climbed aggressively on Monday as the Chinese government announced plans to allow more flexibility into the exchange rate on its currency. China's new policy alleviates fears that a tightening there would clamp down on demand. The materials sector recently was the best-performing group in the S&P 500, climbing 1.5% to the index's 0.6% gain, with aluminum companies, steel companies, miners and others getting a kick-start from the news. If the Chinese yuan is allowed to appreciate, however gradually, it could increase the country's purchasing power. That thought allowed global markets to exhale a sigh of relief, especially as concerns about China's spending cuts had been a major weight on material shares. Keith Springer, the president of Capital Financial Advisory Services, wrote that the move would both help U.S. exporters and U.S. companies competing against Chinese imports. Credit Suisse analysts said the last time China allowed appreciation, the metals and mining sector outperformed the broader market by 31% over the subsequent six months. Aluminum giant Alcoa Inc. (AA) was recently the biggest gainer in the S&P 500, climbing 8.8% to $12.09, while its smaller rival Century Aluminum Co. (CENX) shot up 10% to $11.07 to lead the S&P 1500 index. China's behemoth Aluminum Corp. of China Ltd. (ACH), or Chinalco, saw its American Depositary Shares rise 5.5% to $21.07. Steel giants were also near the top, with United States Steel Corp. (X) and AK Steel Holding Corp. (AKS), rising 5.4% and 5.2%, respectively. Barron's magazine wrote in a feature that worries about a slowdown in China had helped pound the steelmakers, yet the correction appeared to have run its course as U.S. Steel and AK Steel, as well as Nucor Corp. (NUE) and Steel Dynamics Inc. (STLD), were at depressed - and attractive - levels. Nucor was up 1.9% to $42.27 while Steel Dynamics rose 3% to $14.39. Other specialty metals also rose, with Titanium Metals Corp. (TIE) gaining 4.2% to $20.85 while Allegheny Technologies Inc. (ATI) adding 3.2% to $53.72. Dahlman Rose analysts said that appreciation would also be viewed as a positive for global free trade and the large diversified miners that have large exports to China. For U.S. miners, Cliffs Natural Resources Inc. (CLF) and Freeport-McMoran Copper & Gold Inc. (FCX) rose 6.6% and 5.6%, respectively, while the ADRs of global behemoths BHP Billiton Ltd. (BHP) and Rio Tinto PLC (RTP) added 4% each. Meanwhile, coal companies were also getting a boost as Credit Suisse listed them among those to benefit and as data from China showed imports of coal did indeed remain well above year-ago levels in May. Among the gainers were Massey Energy Co. (MEE), up 5.5% to $33.03, Peabody Energy Corp. (BTU), up 4% to $42.92, Patriot Coal Corp. (PCX) up 4.9% to $16.68, and Arch Coal Inc. (ACI) up 3.1% to $23.34. And the companies that make mining equipment also climbed, with Caterpillar Inc. (CAT) adding 2.6% and Joy Global Inc. (JOYG) and Bucyrus International Inc. (BUCY) rising 4.8% and 4.4% respectively. Still, as the market leapt at the excuse for a strong rally, some analysts urged caution in dealing with what was an ambiguous statement from China over the weekend. Credit Suisse said that "appreciation helps raising the purchasing power for imported goods, but the demand for commodities and machinery will be determined by economic activities rather than purchasing power." And others, including Roth Capital and JPMorgan, warned the announcement could have been more of a political ploy ahead of a G20 summit later this week, and will have little actual effect on equities. "The statement emphasized that 'there is no fundamental support for significant volatility in the spot rate,' which suggests that any moves would be very minor," JPMorgan wrote. "As such, to the degree that anyone in the market still expects a one-off, significant appreciation, such expectations will continue to be disappointed." -By David Benoit, Dow Jones Newswires; 212-416-2458; [email protected]; (END) Dow Jones Newswires June 21, 2010 12:21 ET (16:21 GMT)