Why Commodity Stocks are Going Up?

2 min read
In this blog, we will be discussing why Commodity Stocks are going up? Let’s know the reason behind the upward movements of Commodity Prices and in its specific stocks also.

In this blog, we will be discussing why Commodity Stocks are going up? Let’s know the reason behind the upward movements of Commodity Prices and in its specific stocks also.

Introduction

Commodities prices are rising in the market and hence stocks related to various commodities are in buzz. A phenomenal rally has been reported in commodities like Gold, Steel, Aluminium since last year. So here we will be discussing the grounds on which the commodities sector, as well as stocks, are performing well.

Possible Reasons behind the rise in Commodity Prices:

Possible Reasons behind the rise in Commodity Prices:
  • Stimulus Package provided by several governments especially in a developed market as well as quantitative easing step has been taken by Central Banks of India which led to flow of enough money on the hands of citizens.
  •  For Example US Infrastructure Bill:

– President Joe Biden’s $2.3 Trillion infrastructure package.

– US Senate is expected to take its first step forward next week.

  • Quantitative Easing by Central Banks injected enough surplus Liquidity in the market.
  • And Due to Lack of Demand, that surplus liquidity results in a rise in speculation in the following markets: Stock Markets, Currency Markets, Cryptocurrency & Commodities.
  • Once the commodity prices start rising, then the businesses which deal in the market witnessed an increase in margins which turns profitable for them, and therefore these businesses are rewarded by Stock Markets.
  • A Simple illustration of how the rise in commodity prices in the last 1-year has benefitted the business which deals in them:
Rise in Global Commodity Prices
Rise in Global Commodity Prices (Last 1 year)
ii) Rise in Commodity Demand with Pick up in Public Investment:
  • When the Economy Goes Down then Private Investment Slows Down or the pace of private investments in the economy decreases which ultimately impacts on employment level of the economy, resulting in a rising unemployment rate.
  • At this point, Government Participates to revive the economy.
  • Further, Public Investments take pace to build infrastructure assets like Roads, Railways, Dams, etc. During this stage, the motive is only towards employment generation and not targeted towards profit.
  • Here, major infrastructure spending is done by the government and long-term assets are build by the government side.
  • And such Infra Assets raises commodities demand like Steel, Aluminium, Copper, Etc.

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