Miners' mega profits tip lifts FTSE 100

Since this article was published, we have released another update on the FTSE 100 as it pushes toward all-time highs - you can read it here.

It might be going at a snail's pace, but London's blue-chip index looks determined to close in on October's record high. Shaking off their festive hang-over, the miners are leading the bid to make a new all-time high before the year comes to an end. Not only are stronger oil prices supporting commodity prices, but blockbuster profits have just been inked in for the imminent results season.

Closing at 7,067.45 Friday afternoon, the index climbed 31 points to 7,098.15 this morning, underpinned by a bullish trend line established in November, before slipping back to 7,095.4.

Regular Interactive Investor contributor Alistair Strang has already said there's still time for the FTSE 100 to set a new high before the end of the year, outlining its path to 7,158 and beyond.

BHP Billiton, Rio Tinto, Vale and Glencore are expected to report profits of a combined $26 billion (£21.3 billion) in their upcoming results for the six months to December - that's a two-year high and a 40% increase on the first half, data from Bloomberg shows.

No wonder Australian miner BHP Billiton led the premier pack Wednesday morning, jumping 4.21% to 1,311p, followed by Fresnillo and Anglo American, up 4.05% to 1,157p and 3.29% to 1,163p, respectively.

Changing fortunes

Drunk on the fizz of rallying commodity prices, miners ramped up production to keep the profits flowing and dividends streaming during the last commodity cycle, which left the industry with a supply glut that dwarfed the demand outlook, especially once China started warning on the health of its economy.

Increased cash will be used to up dividends, make acquisitions and pay down debtMiners were subsequently forced to slash production, cut their dividends and sell their assets to protect their balance sheets somewhat and try to keep the banks happy.

While earnings crashed temporarily, this massive production cut has helped commodity prices rebound from the January lows not seen for a quarter of a century, also helped by a strengthening demand outlook as China has expanded its infrastructure spending, and Trump has made promises to balloon infrastructure spending - realistic or not is beside the point today.

Risers and fallers

Most in the City expect the fortunes of the commodities sector to continue into the New Year, with increased cash likely to be spent on increasing dividends, strategic acquisitions and paying down debt.

Another top riser is international paper group Mondi, which revealed earlier this month that Russia's competition authority had dropped an investigation into its pricing of offset paper in its local unit. Closing in on the all-time high of 1,702p achieved in October, the shares are up 2.5% to 1,645p today.

On the other side of the coin, International Consolidated Airlines Group slipped to the back, down 1.9% to 448p, along with Capita and Direct Line Insurance Group, down 1.73% and 1.39% respectively to 512p and 363p. Real estate companies have also slipped, perhaps on fears of rates rises in 2017 and a potential fall in house prices.

Capita has had a tough time of it this year, crashing nearly 60% from over 1,200p in January to just 510p today. In charge of large swathes of NHS admin, the London congestion charge and military recruitment, Capita's revenue growth and profit levels have been hammered by a general business slowdown, slow client decision making and one-off costs linked to its TfL contract.

The group was forced to downgrade its own estimates in September, and Goldman Sachs took another red pen to its forecasts earlier this month, slashing its target price to 595p on concerns free cash flow will fall by around 3% each year for the next two.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.