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Federal Government declares the mining boom is far from over

Credit: iStock

Resource stocks are once again outperforming the banks and the broader market today and this trend may be more enduring than what many investors believe.

The share price of BHP Billiton Limited (ASX: BHP), South32 Ltd (ASX: S32), Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH) are making gains when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index slumped 0.7% into the red in late afternoon trade.

These stocks are getting a lift from higher commodity prices and comments by federal Resources Minister Matt Canavan, who is expecting commodity exports to hit a new record high in FY19.

The federal government expects commodity exports to hit $251.8 billion with the strongest growth coming from commodities linked to energy consumption such as liquefied natural gas (LNG), lithium and thermal coal, reported the Australian Financial Review.

This figure is well above FY18’s $226.7 billion and the rising US dollar is providing a further tailwind for our exports.

But it’s probably growth in LNG that’s taking the spotlight as the government is forecasting a 55% surge in LNG exports in the two years to FY20 thanks to a ramp-up in production from eight Australian gas projects and stronger than expected global demand for our gas.

Shareholders in coal producers including South32 and Whitehaven Coal Ltd (ASX: WHC) will also be cheering our government’s prediction of another record year with exports of thermal coal forecast to hit $25 billion in FY19 after reaching a record $23 billion in the last financial year, although the price is expected to pull back in FY20.

There’s good news too for our lithium exporters like Pilbara Minerals Ltd (ASX: PLS). Exports of the battery ingredient will break through the $1 billion mark for the first time in 2020 after rising seven-fold to $780 million in FY17, noted the AFR.

We can thank the rise of the electric vehicle for this boom as electric vehicle sales will hit 40 million a year in 2027 from 2 million a year in 2017, according to the Australian Department of Industry.

The good times in the resources sector looks well placed to keep rolling on and I am overweight on the sector at the expense of the big banks, like Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB).

At some stage, there will be a turning point, but right now I can’t see anything that will persuade me to rotate my positions.

Having said that, resources aren’t the only game in town. There are other blue-chip stocks that are well placed to outperform in FY19.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, National Australia Bank Limited, South32 Ltd, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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