Two stocks showing there's still plenty of fuel in the commodities supercycle tank

Kristiaan Rehder

Kardinia Capital

As iron ore prices sit at record highs of more than US$200 a tonne, the commodities supercycle is in full swing. While there are threats on the close horizon for iron ore and also copper, the future looks bright.

Prices of copper and iron ore have climbed a staggering 90% and 100% over the last 12 months to levels that we believe might not be sustainable in the shorter term. This is partly because of the potential for market intervention by China, the world’s largest commodities consumer.

We’re becoming more cautious on resources in the shorter term, but the commodities cycle is driven very much by economic conditions - a point I emphasised in our recent podcast.

And when you look around the world, almost every indicator you look at is continuing to lift. We certainly believe the commodities supercycle has further to run. This is because fundamental demand underpins the longer-term potential for commodities. 

These fundamentals should outlast any efforts by the Chinese Government to rein in price speculation, having recently clamped down on iron ore. This saw prices pull back to US$180 from highs of US$230, it quickly regained US$200 in just a couple of weeks. That says to us that the rally is really being fuelled by fundamental demand and not by price speculation.

Despite concerns that China might take similar action on copper prices, we're confident these will also be sustained over the longer term by strong underlying fundamentals.

Beyond iron ore, we're also bullish on other industrial metals, particularly those tied to the rapidly expanding manufacture of electric vehicles and batteries. One of these is lithium, whose price in recent months has bounced back to US$720 a tonne, providing impressive margins for producers. 

One of the stocks we favour in this sector is Pilbara Minerals (ASX: PLS). In addition to acquiring one of its competitors, which helped balance the market’s supply-demand dynamics, the company has some lucrative deals in the pipeline.

In the related area of battery production, I'd also highlight NeoMetals (ASX: NMT) which recycles and reclaims lithium, nickel, copper and cobalt – all metals used in the manufacture of EV batteries.

You can listen to the full podcast here.

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Kardinia, a Bennelong Funds Management boutique, aims to generate positive returns through an investment cycle and not lose money in falling markets. For more insights from Kardinia Capital, click the 'FOLLOW' button below or visit our website.

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Portfolio Manager
Kardinia Capital

Kristiaan has more than 20 years of experience in the broader financial services industry. Prior to co-founding Kardinia Capital, he was a portfolio manager with Herschel Asset Management, with responsibilities across responsibilities across a...

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