The last month has seen metals like Copper, Zinc, Aluminum, Iron Ore touch multi-year highs with over 10% surge in a day for ore moving over 220$/ton at Chinese markets, for the first time in over a decade. Copper made its all-time high breaching the $10k/ton in over 8 years on London Metals Exchange, with other nonferrous metals like Ali, Nickel getting on the roller coaster ride and seeing a surge in their prices. Companies like Tata Steel, JSW Steel, which directly correlate with the asset, have risen 100% in value since Feb 2021 on NSE.
So what drove this move?
With covid restrictions being lifted in countries like the US, Germany, there has been a high demand of metals like steel, copper, aluminum which often are considered as a good gauge of economic growth.
With the dollar index weakening and bad reports over the job market in the US, Dollar’s oldest rival, Gold has been benefiting, with over 5% hike for the yellow metal. (Gold is often associated as a hedge for currency and inflation)
China remains the biggest player in the metals market, with any news from our friends in Shanghai making the metals dance. Even though China has announced several pollution reducing measures, and applied trade restrictions on exporters like Australia, the steel mills still continue to print high-grade ore, further pushing the prices on the higher end for steel and its derivatives.
Importantly, not all can be tied up to the fundamentals. Momentum is a huge driver for commodities like metals. Just like we covered in the article on dogecoin, momentum can drive prices like anything!
How much stonk?
All base metals have risen over 10% in value in the last couple of weeks. To put that in perspective - a 15% y-o-y price is considered a good year.
Well, can you still enter the investment?
In general, metal commodities can’t be directly purchased. You can trade the future/options on MCX, but that's highly risky and no retail (common) investor really does that (unless you have crores to spare and/or are an adrenaline junky!).
Instead, you can have a good 20-25% of your portfolio in metals-related companies since most experts believe this rally is here to stay, so we might as well make some money from it.
Which stocks should you target?
Looking at the strong fundamentals, metal giants like Tata Steel, Vedanta Ltd, Jindal Steel, Hindalco, etc. on NSE can make an excellent addition to your portfolio for 2021. If you are risk-averse, investing in a metals ETF/Mutual Fund could also be a good idea. The rally is expected to stay due to the increasing demand and the carrying momentum. As of May 10, China has increased margin on steel trading and upper limits to halt investors, since globally, 2021 is expected to be the year for metals. Happy investing!
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