Commodity prices

There’s more to commodity analysis than just price. But still, over long periods of time, it’s the number one item of interest: what can you sell it at (and what can you produce it at).

Below we see that BHP, RIO’s share prices, are pretty fully explained by whatever Australian iron ore does. AWC is a function of alumina prices. The lithium names have gone to the moon because lithium did.

Now it’s not a perfect mix. ING and UMG, you might imagine, would be down more, given wheat/wheat-related-stuff is a primary input. But of course, they can try to pass the cost on, and make do with less, so it’s not perfect.

WHC has tremendous operating leverage, having gone from near death to riches in a handful of years, and so again, the commodity price doesn’t perfect capture the share price.

For fertiliser and oil prices, it seems the market simply does not expect those prices to persist, and hence it refuses to act as a reliable proxy. Plus ORI and IPL have been beset by operational hiccups over the years.

No call to action, just thinking out aloud.

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