Commodity prices

Broadly speaking, things are looking much better for Alumina (AWC, given alumina and aluminium prices), same with Newcrest (NCM) given copper and gold.

Even IPL; operationally, given DAP and urea pricing, conditions remain elevated, as much as they are say for iron ore or steel. Yet BHP, FMG and RIO have all significantly outperformed, while AWC and NCM are deeply depressed, and comparatively, IPL has undershot peers, and been generally unspectacular.

There’s no great point here; we think AWC trades far below replacement value, we think NCM is making free cash flows and margins comparable to the iron ore majors, but is at a literal 5 year low (by share price) whilst giving us a good hedge against copper prices exploding (ala lithium), and IPL makes a great yield on current DAP pricing, which may or may last, in the same way that iron ore prices may not last, but at least comes without risk of the China property market overhang.

To that end, China does appear to be pulling out all the stops to save the property market, and such measures are likely to have some near term stabilising effects, even as in the long run they are unlikely to get any traction given awful fundamentals.

So, a generally good backdrop for commodities, given the China story, against worries of a global slowdown, and within commodity producers, a preference for some of the comparatively unloved or better priced stocks like AWC, IPL and NCM.

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This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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