COMMODITIES NEWS
MAY 6, 20211:41 PMUPDATED 22 MINUTES AGO Column: Some commodity producers lagging the rallies in red-hot metals - Russell
By Clyde Russell
6 MIN READ
The global rally in commodities has seen some like copper and iron ore probe record highs, but when it comes to the companies producing natural resources the gains in their share prices have been largely lagging and uneven.
Benchmark London copper futures came within a whisker of their all-time high on Wednesday, reaching $10,040 a tonne, just shy of the record $10,190 hit in February 2011.
Copper has gained 28.1% since the end of last year and is up 114.9% from its 2020 low, hit in March of that year amid the global economic fallout as countries locked down their populations and halted travel in a bid to contain the spread of the coronavirus pandemic.
But while prices for metals have been robust, the share prices of major producers have not quite matched the stellar gains of the commodities they produce.
Rio Tinto, the Anglo-Australian miner that is currently the world’s biggest iron ore miner and a major producer of copper, should be the standout beneficiary of the current rally in metals.
Certainly, its Australian-listed stock has performed well, rising 10.4% since the end of last year and 72.7% since the 2020 low in March in local currency terms.
But it’s worth noting that in the rally after the 2008 recession, which like the current surge was built largely on Chinese commodity demand, Rio’s shares leapt 206% between the low in December 2008 to a peak in April 2010, while copper only managed a rise of about 179% over the same period.
Comparing commodity price gains with those for the shares of producer companies has an element of comparing apples and oranges, given several factors affect the valuation of equities, including the value of potential dividends, debt levels and expected capital expenditure. However, with the huge rally in commodities, it may be expected that dividends will also surge, which in turn should help drive share price outperformance.
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