What’s going on with the Anglo American share price?

The Anglo American share price dipped by 9% today. For answers I turned to the Q1 2022 production report.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Anglo American (LSE:AAL) stock has been a standout performer in my portfolio in 2022, rising about 27% year to date. The metals and mining giant has benefitted from commodity price inflation due to supply constraints in the face of increasing demand. Given that commodity prices have been ticking higher for some time according to the S&P GSCI commodity index, today’s 9% slump in the Anglo American share price caught me off guard.

Figure 1. The S&P GSCI commodity index from May 2019 to now

The S&P GSCI has been moving higher since May 2020
Source: S&P GSCI

Yesterday the International Monetary Fund (IMF) cut its global growth forecast for this year to 3.6%. For reasons, it offered risks from the situation in Ukraine, tightening fiscal and monetary policy, and ongoing Covid-19-related drags on economic activity. That might be expected to hurt Anglo Americans’ share price. But, the IMF also warned of prices, which would include commodities, rising 7.4% this year, which should be good for the Anglo American share price.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

It’s all about mining output

The IMF’s report came out yesterday. Anglo America shares dipped but not by much. Today’s slide is all about lowered output guidance. According to the company, its first-quarter 2022 production fell 10% year on year. The cause was cited as worker absences due to Covid-19, high rainfall affecting Brazilian and South African operations, and other operational challenges. Not all product lines suffered equally. Rough diamond production increased by 25% in Q1, and full-year guidance remained unchanged. Copper production fell 13%, but full-year guidance remains unchanged. Iron ore and platinum group metal production fell by 19% and 6%, respectively, and full-year guidance decreased. That is concerning, as these product lines accounted for 26% and 34% of group revenues last year.

Table 1. Selected Anglo American Q1 2022 production and full-year guidance for various products selected on their total revenue share

ProductQ1 2022 production increase/(decrease)Full-year guidance (previous guidance)Share of 2021 group revenue
Rough diamond25%30-33m carats
(30-33m carats)
13%
Platinum group metals(6%)3.9-4.3m ounces
(4.1-4.5m ounces)
34%
Copper(13%)660-750 kilo tonnes
(660-750 kilo tonnes)
15%
Iron ore(19%)60-64m tonnes
(63-67m tonnes)
26%
Metallurgical coal(32%)17-19m tonnes
(20-22m tonnes)
7%
Source: Anglo American Production Report Q1 2022

Another point of concern in the report was that cost of production has been increasing. Of course, increasing the prices of the items, in this case, metals and ores, a company is selling is a good thing. But, if the input prices for raw materials and energy are also increasing, then benefits from increased sales prices can be offset.

Anglo American share price

Those Covid-19 absences won’t go on forever. Disruptive weather is unpredictable, although it will become more frequent if climate change continues. That being said, rainy seasons don’t last all year. But overall, these are temporary blips and are unlikely to persist for multiple quarters.

But, Anglo American is and always has been a cyclical stock. When economic growth is improving, the Anglo American stock price goes up, and it falls when things take a turn for the worse. With all the risks to global growth and those inflationary fears, I would not call myself an Anglo American bull. But, I am not going to be selling now. I bought this stock for its dividends. My expected dividend yield is still enticing enough to suffer through a much larger slump than today.

More on Investing Articles

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »