Over the past week, Anglo American (LSE:AAL) shares have popped by 14.44%. The move higher has erased all of stock’s losses from the last year, meaning that the FTSE 100 share is now up 7% over this time period. Given the size of the move in such a short time, it’s important for me to understand what’s driving this.
Commodity prices jumping
Anglo American is a global mining company, with large scale production of platinum, copper, nickel, iron ore, and more. Part of what drives revenue for the business is the sales price of the commodities. The higher the market price, the larger the profit margin for Anglo American.
So when I look at the performance of some precious metals and other similar products over the past month, I can see why the stock has rallied. For example, copper is up 8.4%. Platinum has jumped by 4.5%, and nickel is up 3.7%.
China back on the map
Of course, the move in the share price has exceeded the jump in the commodities. But that’s where another factor comes in. Part of the reason why we had the spike in prices was the announcement last week about China stimulus measures. This included cuts to interest rates and other fiscal changes that are designed to spark economic growth.
It’s no surprise that China is one of the world’s largest consumers of copper, nickel, and iron ore. This is mostly due to the need for them in the manufacturing and construction sectors. Put another way, a China spark would see higher demand for these metals and related commodities.
Therefore, the Anglo American share price jumped not just because of the rally in commodities, but also due to the optimism around potential future demand from China and how this could benefit the company.
Direction from here
The stock is still comfortably far away from the 52-week highs from this spring above 2,800p. Yet I think that the momentum behind the stock could help to fuel a rally towards this level in coming months.
I think the support for the Chinese economy could really help to get things going again, especially with comments that the government could offer more support packages. Anglo American is well-positioned to take advantage of any demand spike.
Further, the firm is in good financial shape. In the annual results from July, it spoke about how the continued push to reduce costs is working. It’s on track to reduce annual costs by $1.7bn by 2026. At the same time, net debt for 2024 stayed basically unchanged from 2023 at $11.1bn. This is 1.1x annualised EBITDA, so certainly not a high level.
Of course, a risk is that this is just a short-term pop. If data from China starts to disappoint, or if commodity demand falls again, Anglo American stock could falter. Yet ultimately I think this could be the start of something long lasting, so am considering adding it to my portfolio.
The post This FTSE 100 stock is up almost 15% in a week! Here’s what’s going on appeared first on The Motley Fool UK.
Should you buy Anglo American shares today?
Before you decide, please take a moment to review this first.
Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.
It’s called ‘5 Stocks for Trying to Build Wealth After 50’.
And it’s yours, free.
Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.
And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.
That’s why now could be an ideal time to secure this valuable investment research.
Mark’s ‘Foolish’ analysts have scoured the markets low and high.
This special report reveals 5 of his favourite long-term ‘Buys’.
Please, don’t make any big decisions before seeing them.
Claim your free copy now
More reading
Anto vs Anglo: which are the best mining shares for me to buy in October?
Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
