Natural Resources and the FTSE 100: Why Mining Remains the Future

Brexiters’ notion that the UK can become a global trading nation after it emerges from the yoke of EU regulation was given some credence recently thanks to the FTSE 100.

As China prepares to scale back its mining output during the winter months, British companies have been the latest beneficiaries.

According to reports throughout 2017, iron mining revenue has bolstered the FTSE 100 price and given traders something to think about as Brexit moves ever closer. With industrial companies being forced to look beyond China’s iron and metal industry, mining outfits such as Glencore have shown steady growth over the first half of 2017.

“Secondary mining of Phosphate in Nauru,” (CC BY 2.0) by DFAT photo library

Natural Resources Have Solid Long-Term Prospects

Looking at the bigger picture and the future of the FTSE 100 in light of Brexit, it’s possible natural resources could prove a wise investment for those trading FTSE futures. It’s long been asserted that natural resources are a prudent investment for futures traders. The short time frame linked to futures contracts makes them an ideal way to move with the times.

For example, as the latest news coming out of the FTSE futures market has shown, the price of the 100 index has been boosted by China’s seasonal mining strategy. With a change on the horizon, investors are making a move now and that’s pushing up the price of mining companies with UK interests and, therefore, the price of the FTSE 100.

However, what we don’t know in this instance is how long that upward momentum will continue. With China being such as significant market player, a shift in policy could easily send the value of mining companies on the FTSE 100 in a downward direction. However, this doesn’t mean natural resources are a bad market to focus on. While it’s true there can be short terms fluctuations, the outlook in the long-term is positive.

The World Needs Natural Resources

Industrialization and ever-improving global infrastructures mean that natural resources are always necessary. In fact, this is one of the reasons natural resources are often said to act as a “store of value.” When inflation threatens investors, natural resources (especially metal) have a fairly consistent long-term expectation.

This is something that will come to the fore as Brexit moves closer. Uncertain inflation rates, potential economic instability, and the relocation of services such as IT and banking could all impact the FTSE 100. However, with resources such as metal, gas, and oil fixed in place (i.e. a natural resource), companies in these industries have a fairly secure position. Moreover, if the trading world opens up for the UK post-Brexit, opportunities for new deals in countries such as India where steel consumption is predicted to grow by 6.1% in 2017 could prove highly lucrative.

Therefore, while there may seem to be an inherent dichotomy in the long-term value of something that’s gradually declining (i.e. resources such as coal and metal are being used up), natural resources should be a focus for all investors. Today, investing in natural resources and the companies that are fuelled by them is easier than ever. This, in simple terms, is why anyone with an eye on the FTSE 100 should take this industry into consideration.