The plan will focus on rebuilding the US’ creaking physical infrastructure as well as creating the foundation of a cleaner technology in the country as Biden looks to further his party’s climate change causes.
The infrastructure spending in the US could compliment the strong demand emanating out of China, which has been supporting global commodity markets during the pandemic year, said analysts. Following Biden’s announcement, the Bloomberg Commodity index rose nearly 1 per cent.
At home, the Nifty Metal index surged over 5 per cent to a record high as investors’ optimism for the sector rose further on perception that the infrastructure spending in the US will boost revenues from exports for Indian companies.
In an environment where demand from China and US will be strong, not to mention the domestic market where investors are expecting the restart of the investment cycle led by the government, profitability and revenues of metal producers are likely to surge, said analysts.
“I believe that the current cycle resembles the 2002-2008 cycle where commodities did well and while the commodity user industry did not do that well,” S Naren, chief investment officer at ICICI Prudential AMC told ETNow.
The infrastructure plan in the US and the Indian government’s plans for large capital expenditure are not the only thing working in favour of metal companies. On the supply side, several base metals are suffering from chronic underinvestment in finding new sources of minerals as well as China’s renewed focus on reducing its carbon footprint.
One metal that is seeing a roaring bull market is steel where both demand-side and supply-side factors are making investors exuberant. “Tightness in supply due to supply-side issues and production curbs in China has helped regional steel prices inch up further,” said brokerage firm Motilal Oswal Financial Services.
Motilal Oswal Financial Services believes that steel producers at home will increase their prices in the coming days given the increase in steel export prices in South Korea and China – the other two large exporters in Asia.
“We have always been in the camp that all these commodity companies can do very well,” Naren said.