Saturday, 15 May 2021

Commodity Super Bull Run: Part 2/2

Global commodity price has risen since the middle of 2020, and the rise is getting more pace in year 2021. Here in part 2, I'm making notes on recent commodity price surge on metals. You can refer to part 1 for commodity price on energy and agricultural products.


Reduction in supply and increase in demand especially from China have pushed steel and iron ore price to multiple year's high in 2021.

       Steel Rebar (CNY/T) 5-years chart

                     Iron ore (USD/T) 10-years chart

China's steel rebar price has reached CNY5500/T (~USD850/T) recently, up more than 60% in one year.

Listed upstream steel companies such as Ann Joo, Lion Ind, Southern Steel & Masteel should benefit from higher selling price of their end products.

Midstream & downstream steel players have to endure higher cost due to high steel price. However, they can increase the price of their products since steel price has gone up. 

For a period of time, they can enjoy super profit margin by utilizing raw material bought earlier at low price and sell at current high market price.

There are a lot of midstream & downstream steel companies listed in Bursa Malaysia, the long list includes Astino, Atta, AYS, Chinwell, Choobee, Chuan, CSCSteel, Dynacia, Emetall, Engtex, Hiaptek, KSSC, LeonFB, LSteel, Lysaght, Melewar, Mycron, Pantech, Prestar, SKBShut, Tashin, Tongher, WZSatu, YKGI, YLI etc.

In year 2020 with pandemic lockdown, global steel production is down by merely 0.9%. Steel production in China actually increases and makes up 56.5% of global supply, despite its government effort to cut production to reduce carbon footprint.

How long can the steel bull run sustain? We know that supply will eventually pick up with demand and steel downcycle will start.


The rise in aluminium price seems to be steeper than steel.

       Aluminium (USD/T) 10-years chart

The price of aluminium at USD2,550/T now is not far away from its 10-year high of USD2,750/T achieved in year 2011.

Aluminium is used mainly in home appliances, automotive and construction industry.

Again, high demand in China is the main reason for the surge in aluminium price.

As the world's largest aluminium producer, China increased its import of aluminium last year and even turned net importer in 2020.

The only listed upstream aluminium smelter in Malaysia is Press Metal. Other mid to downstream players include PMBTech, LBAlum, PA and Alcom etc.

All of them have registered much improve financial results in their most recent quarters. How long can this spectacular result persist?


Without exception, tin price also experienced a surge in price since the pandemic mainly driven by China demand.

Tin price has increased 100% from USD15,000/T in mid 2020 to USD34,000/T now, surpassing its historical high of ~USD32,500/T in 2011.

       Tin (USD/T) 10-years chart

MSC who has tin mining and smelting business will certainly benefit from high tin price. Its tin mining segment registered tremendous growth in revenue and profit.

According to its quarter report of FY21Q1 ended in Mac21, average tin price increased by 30% from RM76,870 in Q4 2020 to RM100,115 in Q1 2021.

It has posted a very good net profit in its last 2 quarters (Oct20 to Mac21) but there are also huge sum of reversal of inventories written down. Without these reversals, it will suffer small loss.

Its recent financial performance has been dragged down by relocation of smelting operation from Butterworth to Pulau Indah. It will be more cost efficient when it completely moves out from the old Butterworth plant.

As tin price continue its uptrend in Q2 of 2021, MSC should be able to register a core net profit in Q2. However, its share price has already moved up 3 times since last November.

Johotin & Canone who manufacture tin cans have to endure a higher raw material cost though.


Recently copper price has soared past historical high of USD4.5/lbs (USD9,920/T) in 2011. It has gained more than 100% in one year, and has surpassed USD4.75/lbs (USD10,700/T) recently.

       Copper (USD/lbs) 10-years chart

Apart from economy recovery pushing up the demand especially in China who is a top copper consumer, copper price gains traction because of its relation to renewable energy.

Ta Win is a copper product manufacturer in Malaysia which has gained some attention as the copper price flies.

It has recently been appointed as global vendor for NYSE-listed Aptiv for the supply of copper cables and automotive components.

Copper is widely used in an electric vehicle and its charging station, including its electric motor, battery and wiring.

Conventional car is said to use 18-49 lbs of copper while batter EV contains 183 lbs of copper.

Despite a high copper price of between USD3.0-3.5/lbs in the quarter of Oct20-Dec20, Tawin is still suffering loss even though its revenue jumps by 46%.

With copper price going up further to USD3.5-USD4.2/lbs in Jan21-Mac21, can Tawin turn profitable in its upcoming FY21Q3?

Nevertheless, like many other metal stocks, its share price has gained 200% from 15sen to 45sen in 2 months time, before being adjusted back to 15sen after the right issue.


As a precious metal, gold price trend is a bit different from other metals.

From the 10-years price chart below, gold price stayed relatively low at around USD1,200-1,300 between year 2013 and 2018.

       Gold (USD/t.oz) 10-years chart

Gold price started to move up from mid 2019 and after a brief drop in Mac20 due to Covid-19 fear, it continued its uptrend to break historical high of USD1,800 achieved in year 2011.

It continued to inch up above USD2,000 in Aug20 but has since dropped back to current level of USD1,800.

Gold is generally regarded as safe haven for investors during turbulent time, that's why its price continued to go up when global stock markets suffered.

When the stock market and the economy recover, gold price starts to drop.

Of course gold price is also dictated by supply and demand. Its main demands come from jewelry industry, investment funds and also central banks who keep gold as reserves. Semiconductor industry uses some gold too.

Gold mining production has not changed significantly since 2016, as miners have to dig deeper for quality gold now.

Gold is often seen as a hedge against inflation. When there is inflation or the US dollar weakens, gold price tends to go up.

As we can see, the run up of all those commodities price are almost all related to China. 

In the early stage of Covid-19 pandemic, China's economy paused for almost 2 months in general. So it's not strange to have a sudden surge in demand after that.

Similarly, demand from Western countries are picking up as well when Covid-19 cases seem to be more under control.

Reduced in supply and increase in demand is a formula for price to increase.

However, for anything that goes up fast, it has higher risk to go down fast too. So personally I don't think current high commodity price can last beyond Q3.

Can I still buy commodity related stocks such as plantation, oil & gas, steel, aluminium, copper or timber related stocks?

Metal stocks have been flying to the sky but the rise in share price of plantation, O&G & timber stocks do not seem to follow the magnitude of their commodity price increase.

As mentioned earlier, company profit depends largely on its production volume besides the selling price.

For example in oil palm plantation, first quarter of the year is usually a lower FFB production season. If CPO price increases by 20% but CPO sales volume is down by 20%, there will be no significant increase in profit.

Q3 of the year might be the best period for plantation companies. However, if the CPO price started to drop toward RM3,500/T from RM4,500/T in Q3, will the market value plantation stocks highly while the CPO price is dropping, despite knowing that its upcoming quarterly result will be record-breaking?

This scenario might apply to timber-related stocks as well. Logging business is mostly loss-making last year. The sudden surge of lumber price in the first half of 2021 might give those companies one or two good quarters.

When the lumber price normalizes, those companies might go back to their usual profitability or loss.

Metal stocks have rallied but most plantation stocks are still awaiting their turns. Who will timber stock follow?


  1. The inflation worry has caused US stock market came down last week.
    It is interesting to hear the news which reported that the below expectation new jobs data in US lifted the stock index later as the worry is lessen. It seems like the "bad" data/news now can become "good" for US stock market now. People worry the economy recovery becomes too strong to push FED to increase the interest rate.

  2. I think another bad thing about inflation is it would reduce the demand for goods which subsequently hinder the economy growth.

    1. The was quite a steep interest rate hike in year 2010-2011 in Malaysia. I can't remember exactly what happened to the stock market locally & globally at that time but I guess it should do well based on the KLCI index.

    2. In 2004, US interest rate was at ~1.5% and it rose gradually to ~5.5% in 2007. During this period, US economy had been growing and interest rate hike followed. In 2008, financial crisis happened, US economy collapsed, and the interest rate was adjusted downwards to ~0.25%.
      What we can see is interest rate hike is inevitable when economy gets "hotter" which normally means higher stock index too. The rate hike is in fact the result of improving economy, and it is meant to cool down and slow down the economy growth but not to end it.
      People can be so sensitive to interest rate hike nowadays because they know the bull run since Q2'20 till now is mainly propelled by near-zero interest rate and plenty of liquidity, and not really economy growth. The worry is the hike may end the bull.

  3. I noticed Rhonema's has reported improved quarterly results, i took a look and observed the followings :
    i) PBT QoQ decreased but PATAMI QoQ increased due to much low MI% (from 19% down to 3+% QoQ). The low MI% may means the contribution of newly acquired subsidiaries is low in this quarter..
    ii) the revenue from dairy production has contributed greatly in this quarter albeit the profit increment is not much (yet).

    What i don't quite understand is the depreciation charges in this Q1 quarter is much lower than preceding Q4'20 quarter. The new plant has commenced operation in early 2021, i wonder why the depreciation didn't increase? What i worried about investing in Rhonema was higher depreciation charges and other costs related to new plant would erode its earnings but it didnt seem like the case from this quarterly report.. If i put this worry aside, Rhonema is a buy since its earnings should be propelled by the new plant's new capacity and dairy production in quarters to come.
    Do u have answer for my doubt above?

    1. The lower profit to MI & lower depreciation charge surprise me as well, as I expect both to increase. Rhonema completed acquisition of ruminant/dairy business in July 2020 (FY20Q3),

      The amount of PPE in FY20Q2 / FY20Q3 / FY20Q4 / FY21Q1
      59.3 / 66.1 / 73.1 / 74.1
      Depreciation charge 0.6 / 1.2 / 2.4 / 0.7

      Looking at the figures above, it's possible that the depreciation charge of new plant might start to appear in its account in FY20Q4. The issue is why the depreciation charge is lower in FY21Q1. Can it be write back from overcharge in FY20Q4? I don't know...

      Its FY21Q1 result is so-so for me, and 70sen looks like its base which it stays firm despite recent market rout. Anyway I read that there is another animal health product company based in Penang planning to list in main board, with a plan to build a new plant as well. So I guess the demand should be there.