The commodity market currently is witnessing a supercycle in terms of price performance, said Pinakin Parekh, Metals and Mining and Oil and Gas Analyst at JPMorgan.
“Commodity space right now looks to be in a super cycle," said Parekh in an interview with CNBC-TV18.
A commodity supercycle is a rare phenomenon that sees an unusually strong demand growth for commodities for a long period -- which suppliers struggle to keep the pace with -- leading to a sharp rally in prices. A supercycle last for years or even a decade.
“Many of the commodities hit decadal high prices earlier in this year. Some prices have cooled off. On metals and mining sector, our view is that while earnings did peak out seemingly in Q2FY22, it looks like many companies could see a plateau in earnings at very elevated levels compared to what they have seen in the past. We like steel, we like aluminum from a sector perspective,” said Parekh.
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Steel prices in China have fallen very sharply, however, in Asia, Europe and US, prices have not corrected that severely, Parekh noted. "So, it does not look that China is exporting the domestic price weakness out," he said.
Parekh expects coking coal prices to come off. “We do not see a big decline in domestic steel prices. If you put that in the context of over the next two-three quarters, we should have lower coking coal cost and stable steel prices so that is a good backdrop for earnings,” he explained.
Overall, Parekh remains constructive on the commodity space.
“Our view is that consensus earnings compared to what is happening on the ground remain too low and therefore the risk reward remains attractive broadly for stocks in this space,” he said.
For the full interview, watch the accompanying video.
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