Top 3 commodity stocks to watch out for in 2024

Commodity markets are vulnerable to geopolitical tensions, supply chain disruptions, and unexpected market swings
Commodity markets are vulnerable to geopolitical tensions, supply chain disruptions, and unexpected market swings


  • The year ahead promises exciting shifts in demand and supply, creating plenty of opportunities for these three companies

As we step into 2024, commodity stocks are poised for resilience and potential gains in the economic landscape. Anticipated interest rate declines by year-end suggest a favourable outlook for commodities, as their prices often inversely correlate with interest rates. Higher rates typically dampen commodity prices due to increased costs for holding inventories.

This year also brings dynamic shifts in demand and supply, presenting numerous opportunities across various sectors.

With this in mind, let’s look at the top 3 commodity companies that you need to add to your watchlist.

#1 Tata Steel

First on our list is Tata Steel.

Tata Steel, Asia's first integrated private steel company, spans the entire steel manufacturing value chain. The steelmaker saw a challenging 2023 marred by interest rate hikes, a robust dollar, a tepid China reopening, inflation, and disappointing financial results. In the June quarter, the company reported a 92% year-on-year (YoY) decline in net profit, while for the September 2023 quarter it posted a net loss of 62 billion.

For the September quarter, the company included an impairment charge of 26.3 billion, related to Tata Steel UK, a step-down subsidiary. In addition, it also undertook a charge towards restructuring and other provisions of 36 billion.

2024, however, seems brighter.

India's robust steel demand, fuelled by government infrastructure spending, portends strong volume growth, particularly in the latter half of FY25, due to heightened construction activities. A rebound in global steel spreads will also help.

Tata Steel's CEO, TV Narendran, forecasts rising steel demand, propelled by infrastructure development. The company plans to invest 100 billion annually to increase capacity by 1-2 million tonnes, maintaining its market share. It has already spent 86.4 billion in the first half of FY24, aligning with its 160 billion annual budget. Future plans include expanding production at Kalinganagar and Angul and significant investments in the downstream sector.

Gamharia has also been earmarked for strategic investment.

Narendran had earlier also said that the company is planning to scale up its annual installed steel-making capacity to 40 million tonnes per annum (MTPA) by 2030 in India, from around 22 MTPA at present.

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2. UltraTech Cement

Second, on our list is UltraTech Cement.

UltraTech Cement, India's largest grey cement, ready-mix concrete, and white cement manufacturer, saw a 51% share price surge in 2023. Achieving 100 million tonnes in production, dispatches, and sales in FY22-23, the company continued this momentum into the first half of FY23.

For the June 2023 quarter, the company reported a 20% YoY increase in volumes with capacity utilization of 89% and for the September quarter.

UltraTech has said cement demand across sectors remains strong, and will help bolster its performance. Higher infrastructure spending ahead of the general elections in 2024 is expected to propel cement demand.

UltraTech's ongoing expansion, adding 5.5 MTPA capacity this fiscal year following a 12.4 MTPA addition in FY23, is on schedule. Last month, it announced the commissioning of a 1.3 MTPA brownfield cement capacity at Hirmi in Chhattisgarh and a 2.8 MTPA greenfield grinding capacity at Cuttack, Odisha.

The company has plans of acquiring Kesoram Industries' cement business to boost capacity in a competitive market. It also aims to triple its green energy share to 60% by FY26 and incorporate 500 electric trucks and 1,000 CNG/LNG vehicles by June 2025, as part of the government's eFAST initiative.

UltraTech Cement Share Price Performance – 1 Year
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UltraTech Cement Share Price Performance – 1 Year

3. Coal India

Third, on our list is Coal India (CIL).

This Maharatna company contributes 80% of the country's coal production. It supplies more than 80% of its production to the power sector, and operates across eight states with 318 mines and thirteen coal washeries.

Booming demand for coal drove up shares of the coal miner in 2023. The company reported encouraging results in terms of coal production, dispatches, and overburden removal in the first half of the financial year 2024.

This rally in the miner's shares have continued, with the recently hitting an over eight-year high after it reported an 8.2% YoY growth in coal production in December at 71.9 million tonnes.

It plans to invest 15-20 billion annually over the next three years, enhancing mining and washing capacity, rail infrastructure, and establishing thermal and solar power plants. Coal India also aims to diversify by acquiring lithium, cobalt, and nickel assets abroad.

Apart from this, it also plans to improve the efficiency of transporting coal by investing in first-mile connectivity projects. This will ultimately reduce its logistics cost.

The company has recently amended its Memorandum of Association (MoA) to include non-ferrous and critical minerals, indicating its commitment to expanding its presence in new sectors.

Looking ahead, Coal India is set to play a major role in India's energy sufficiency aspirations. The government has set a 1-billion production target for Coal India in FY24. This will be driven by ramping up production and incremental output from existing and new captive mines.

Note that Coal India also has rich dividend history. Since its listing in November 2010, the company has never missed a dividend payment. In the past decade, not once has its dividend yield slipped below 5.6%.

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While the prospects of the above companies seem promising for 2024, keep in mind that the prices of commodities are driven by various factors – domestic and international.

While they offer potential rewards, they remain vulnerable to geopolitical tensions, supply chain disruptions, and unexpected market swings. Investing in commodities requires a keen understanding of the market dynamics and a stomach for fluctuations.

Therefore, it's essential to tread cautiously when diving into commodity stocks.

It's wise to diversify your investment portfolio to spread out the risks associated with these volatile assets. Always do thorough research and consider seeking advice from financial experts before diving into commodity stocks.

Happy Investing!

Disclaimer:Thisarticleisforinformationpurposesonly.Itisnotastockrecommendationand shouldnotbetreatedassuch.

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