Signs of economic turbulence in China suggest trouble could be coming for commodities producers like FTSE 100-quoted Antofagasta (LSE: ANTO). Critical data this week actually showed manufacturing PMI in the raw-materials-hungry nation fell to two-year lows of 49.1 last month. January’s reading came amidst a fresh spike in Covid-19 cases and was below the benchmark of 50 that shows sector contraction.
It’s possible that Antofagasta could see demand for its copper drop in the near term as the pandemic rolls on. After all China consumes around half of the world’s copper. However, I think the long-term benefits of owning this FTSE 100 stock could outweigh the near-term dangers. It’s my opinion that the firm’s profits could soar as global copper demand booms in the years ahead.
An electrifying stock to own
Thanks to its high conductivity, copper is a perfect material for use in consumer electronics, electric cars, wind turbines and a host of other fast-growing areas. This quality also makes it an essential commodity in modern infrastructure and so demand should also soar as urbanisation takes off in emerging markets.
Analysts at Citi have predicted that “decarbonisation-led consumption growth” in the copper market “is set to outpace mine supply growth over the next five to 10 years”. Indeed, the bank reckons red metal consumption will rise 24% between now and 2030.
Antofagasta’s shares currently trade on a forward price-to-earnings (P/E) ratio of 16.4 times. This is middling value to be honest, but this rating doesn’t reduce the company’s appeal to me. As one of the biggest copper miners, it’s well placed to capitalise on the copper boom with its portfolio of world-class mines. I think it could prove to be a lucrative buy for me.
Inflationary headaches
The markets have had to digest a further slew of scary inflationary data on Wednesday. But as a UK share investor I continue to sniff out an opportunity here.
In the UK, the British Retail Consortium advised that shop price inflation almost doubled month-on-month to 1.5% in January. A mix of rising energy costs, poor harvests and labour shortages all helped prices rise at their fastest pace for a decade.
Meanwhile consumer price inflation in the eurozone has soared to new record highs of 5.1%, data showed today. Price growth had been expected to slow to 4.4% and today’s news is particularly worrying given the European Central Bank’s reluctance to raise rates.
A FTSE 100 share for the gold rush!
So what does all this mean for share investors? Well I believe that buying precious metals stocks like Fresnillo remains a good idea. Prices of gold and silver rise when inflation balloons as investors seek out safe-haven investments. So in my opinion, things are looking good for this FTSE 100 mining business.
Digging metal from the earth is a complicated business. And investors in Fresnillo face the risk that problems could occur that might affect the company’s ability to capitalise on strong precious metals values. However, I think the potential rewards of owning the Mexican miner outweigh the risks.
