There are 3 emerging trends bubbling away underneath the headlines which promise to be lucrative for astute investors. However, 3 dramatic movements have dominated commodity news. The collapse of the oil price. The momentum in the iron ore market. And the bull run in the gold sector.
Aluminium is a busted flush
The transport sector uses approximately 27% of global aluminium production. While the full extent of the economic damage of COVID-19 is yet to be revealed, it is safe to say car purchases are likely to fall. Furthermore, if stay-at-home becomes an endemic trend, or if there are second or third waves of infection, then car sales are likely to be hit further.
The aviation industry has also fallen silent. There is no clear indication of when this is likely to open up again between states, let alone between nations. The demand for new aircraft from cash-strapped airlines is likely to also fall. This is without even considering the glut in aluminium globally.
For investors, there are several companies to be wary of. Alumina Limited (ASX: AWC) will see a sustained fall in earnings. Aluminium is a notoriously slow market to respond to buying signals. Rio Tinto Limited (ASX: RIO) will also feel the weight of this trend on earnings.
Copper a surprise emerging trend
Copper entered the current crisis in a good position. It had reasonable inventory levels with falling supply pipeline of copper mines. However, during the lockdowns, numerous large-scale copper mines were closed. The copper spot price has just hit an 8 week high. It paints a good picture of post-pandemic spot prices.
Copper is a ubiquitous base metal. With such wide applications, the impacts will be uneven. The surprise development has been the antibacterial elements of copper and the use of copper coatings has already begun. It is also starting to be used to build fittings for hospitals as well as other high traffic areas.
The big ASX winners here are companies like Sandfire Resources Ltd (ASX: SFR) or BHP Group Ltd (ASX: BHP). BHP, in particular, is the world’s third-largest copper producer and will likely emerge from lockdown stronger than when it started.
Nickel supported by reduced supply
Nickel is still sitting at its lowest price for 12 months. While this is due to the demand pause during lockdowns, it is not out of character for a cyclical commodity like this. Nonetheless, as we enter the post-pandemic phase, the nickel price is likely to rise.
In the medium term, the nickel price has a strong upside. The emerging trend is on the supply side. Indonesia has banned exports of nickel ore, placing a structural change on global supply. In addition, nickel stands to benefit from any future technology advances in batteries and electric cars. It is estimated that around 50kg of nickel is required for each car.
BHP again stands to benefit as the world’s fifth-largest Nickel producer. IGO Ltd (ASX: IGO) and South32 Ltd (ASX: S32) will likely see a positive impact on earnings as nickel producers. Meanwhile, Western Areas Ltd (ASX: WSA) remains a reasonable nickel pure play.
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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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