The recent surge in geopolitical tensions has caused commodity prices to rise, as conflicts and political unrest disrupt critical supply chains. In the Middle East, long known for its vast oil reserves, ongoing tensions or outright conflict can halt production, damage infrastructure, and block key export routes, such as the Strait of Hormuz. These disruptions reduce the global supply of energy, leading to shortages that drive prices higher.
Energy security has become a priority for many nations, especially those directly impacted by geopolitical tensions. Countries are stockpiling energy resources and aggressively bidding for long-term supplies in anticipation of further disruptions. This competition for resources drives up global prices as nations race to secure their energy futures.
1 Month Percentage Appreciation of Coal (white), Crude Oil (blue) and LME Nickel Price (orange).
The recent surge in global commodity prices has been partially priced in by investors. The share prices of oil-related stocks have rallied in recent months, reflecting investors' views on future energy prices. Although MEDC, AKRA, and ELSA may not see substantial financial improvement from the crude oil price hike, they are considered some of the closest proxies for crude oil. Therefore, we recommend that investors take advantage of the momentum in rising commodity prices.
MEDC, AKRA and ELSA 1 Month Share Price Performances
Additionally, in line with this momentum, we have noticed that INCO’s share price is recovering. INCO’s share price is closely correlated with LME nickel prices, more so than other nickel-related companies, due to the nickel content of their products.
LME Nickel Price (orange) and INCO (purple) Price Comparison
For coal companies, if the ICE Newcastle coal price remains stable around USD 150/ton, or increases further, ITMG may be one of the first coal companies to benefit, as they produce high-calorific-value coal, which is closest to ICE Newcastle coal.
Moreover, coal-related companies have been underinvested for years due to limited fundraising options driven by unsupportive ESG scores. This ESG issue has also restricted foreign investors from investing in coal-related stocks, reducing the downside risk from the rotation of capital flows from Indonesia to China.
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