Could the mining sector be bottoming? Dare we hope?
There've been plenty of predictions that the worst for the embattled sector is behind us, but these have so far proven to be false dawns.
However, the resilience of the iron ore recovery has taken many by surprise with the commodity bouncing around 30% from recent lows at a time when there are deepening concerns about the health of the Chinese economy.
Sure, the iron ore price fell 1.5% to $US58.10 a tonne last night, but that's its first decline following four consecutive sessions of gains and many didn't think it could get close to the $US60 mark in the face of waning demand and an oversupply of the steel making ingredient.
But mining equity investors are reluctant to pay much heed to the recovery with the S&P/ASX 200 Materials (Index: ^AXMJ) (ASX: XMJ) Index staying depressed even as the commodity price rallied.
All the bad news is priced in, but none of the good news is.
JPMorgan's UK-based analysts are the latest to add their voices to the debate by upgrading the major global miners to "outperform" on the belief that the downside risk for the sector is limited because of the severe downgrade in earnings per share (EPS) estimates for the miners.
Further downgrades are unlikely unless commodity prices fall significantly further and that is not likely, according to JPMorgan.
This is because there has been some improvement in the Chinese economic data with auto sales up 12% month-on-month for August and the Purchasing Managers' Index (PMI) recovering to 45 from 37. The PMI is a measure of manufacturing activity in the country.
Further, infrastructure orders are bottoming out and property transactions are stabilising, added JPMorgan.
There's also valuation support for the likes of BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) as price-to-book values for the sector are the cheapest they've been since 2001 with miners aggressively cutting spending to bolster their balance sheets.
Coincidentally, Jefferies Group also upgraded BHP to a "buy" equivalent recommendation. This isn't on the belief that demand for commodities is on the rebound but because of its dividend yield. The mining giant's Australian shares are forecast to pay a dividend yield of around 7.5% in 2015-16 and the following year – fully franked too.
There have been worries that BHP's high yield is unsustainable but that's only true if hard commodity and energy prices were to plunge further or if the low prices fail to recover within the next 12 to 25 months.
While the risk exists, the threats to BHP's or Rio Tinto's dividends are no greater than that of the Big Banks. In fact, the risk to miners might even be smaller.
Persistently low commodity prices imply a global recession, which would weigh very heavily on bank stocks as well.
But there's a greater chance of a domestic recession than a global one, and that will force banks to cut dividends.
On the other hand, a local recession is unlikely to impact on the miners' cash flow.