Skip to main content

Visitors pass a logo of Teck Resources Ltd mining company during the Prospectors and Developers Association of Canada (PDAC) annual convention in Toronto, Ontario, Canada March 4, 2019.

CHRIS HELGREN/Reuters

Morgan Stanley analysts are predicting a rebound in global economic growth and manufacturing activity that will benefit base metals prices and miners everywhere, and they believe Canada’s Teck Resources Ltd. will be one of the most lucrative ways to benefit from the trend.

Early signs of a recovery in the factory sector make the forecast all the more compelling.

Chetan Ahya, Morgan Stanley’s chief global economist, expects the recovery in key global indicators such as purchasing manager surveys will gain momentum, and this is very good news for base metals miners.

Story continues below advertisement

“A [first quarter] recovery is on the cards: Global growth should recover … as trade tensions and monetary policy are easing simultaneously for the first time since the downtrend began," the analyst said in a report this week titled 2020 Global Macro Outlook: The Late-Cycle Expansion Extends.

The first accompanying chart shows a close relationship between resource prices – as measured by the BMO Equal Weight Global Base Metals Hedged to CAD Index ETF – and global manufacturing activity.

resource watch

BMO Equal Weight Global Base

Metals Hedged to CAD Index ETF

JPMorgan Global

Mftg. PMI

$80

55

54

70

53

60

52

50

51

40

50

30

49

20

48

10

47

0

46

2018

2017

2014

2015

2016

2019

JPMorgan Global

Manufacturing

Teck Resources

55

$40

54

35

53

30

52

25

51

20

50

15

49

10

48

5

47

0

2018

2017

2014

2015

2016

2019

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: scott barlow; bloomberg

resource watch

BMO Equal Weight Global Base

Metals Hedged to CAD Index ETF

JPMorgan Global

Mftg. PMI

$80

55

54

70

53

60

52

50

51

40

50

30

49

20

48

10

47

0

46

2018

2017

2014

2015

2016

2019

JPMorgan Global

Manufacturing PMI

Teck Resources

$40

55

35

54

30

53

25

52

20

51

15

50

10

49

5

48

0

47

2018

2017

2014

2015

2016

2019

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: scott barlow; bloomberg

resource watch

BMO Equal Weight Global Base

Metals Hedged to CAD Index ETF

JPMorgan Global

Manufacturing PMI

$80

55

54

70

53

60

52

50

51

40

50

30

49

20

48

10

47

0

46

2018

2017

2014

2015

2016

2019

JPMorgan Global

Manufacturing PMI

Teck Resources

$40

55

35

54

30

53

25

52

20

51

15

50

10

49

5

48

0

47

2018

2017

2014

2015

2016

2019

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: scott barlow; bloomberg

The blue line on the chart represents the JPMorgan Global Manufacturing PMI, a composite index. This benchmark compiles national surveys of manufacturing executives who answer a series of questions regarding trends in hiring, business activity and orders for new goods. Readings above 50 indicate growth (as of Oct. 31, the last data point, it stood at 49.8).

The metals ETF has stabilized since the PMI bottomed in July and began recovering. Investors should always remember that “correlation does not equal causation” when looking at charts like these, but subjectively it makes perfect sense that rising manufacturing activity has lifted demand and prices for related commodities.

In a Nov. 19 report, Morgan Stanley mining analyst Carlos De Alba noted the significant profit potential in the current global economic environment. When the U.S. manufacturing PMI (not shown on chart) drops below 48, as it did in September, and a recession did not follow in subsequent months, the

S&P Metals and Mining index significantly outperformed the S&P 500, on average, in the following 12 months.

Mr. De Alba highlighted Teck, along with U.S.-based Freeport-McMoRan Inc., as stocks best positioned to benefit from the recovery in the mining industry. The analyst highlighted Teck’s strong balance sheet and strong copper production growth outlook as primary reasons.

Story continues below advertisement

The second chart compares Teck’s performance to the global PMI. The relationship is less close than between PMIs and commodity prices, but the stock price did peak just after the index in early 2018, and can be expected to follow PMIs higher.

Morgan Stanley’s base case is for copper prices to average US$3 a pound in 2020, and metallurgical coal prices average US$141 a tonne, which gives Teck a target price of $28.63 next year. The stock is currently trading just under $21, so the target price implies a return of more than 35 per cent in 2020.

Morgan Stanley’s view is rosy, but a position in Teck is not without risk. A global economy that fails to recover in 2020 would likely result in losses. Furthermore, on Thursday, Bank of Montreal analyst Jackie Przybylowski downgraded the stock to “market perform” from “outperform” on fears of low coal production. Ms. Przybylowski‘s stock price target, however, remains much higher than Morgan Stanley’s, at $37.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies