Top 3 Commodity Stocks to Watch Out for in 2024

As we step into 2024, commodity stocks are gearing up to show their resilience and promise in the economic arena.

With interest rates expected to fall by the end of 2024, the year looks promising for commodities.

Commodity prices and interest rates are inversely related due to the cost of financing stockpiles. When interest rates move higher, commodity prices tend to move lower because of an increase in cost associated with holding inventories.

The year ahead also promises exciting shifts in demand and supply, creating plenty of opportunities across different 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 is Asia's first integrated private steel company. It is present across the entire value chain of steel manufacturing from mining and processing iron ore and coal to producing and distributing finished products.

2023 was a tough year for the company. Interest rate hikes, a strong dollar, and a lacklustre China reopening, along with inflation had made 2023 a difficult year for metals.

The company's results for both quarters of the first half of the financial year were disappointing. For the June 2023 quarter, the company reported a 92% YoY decline in net profit while for the September 2023 quarter it posted a net loss of Rs 62 bn.

For the September 2023 quarter, the company included an impairment charge of Rs 26.3 bn, related to Tata Steel UK, a step-down subsidiary. In addition, it also undertook a charge towards restructuring and other provisions of Rs 36 bn.

However, this is set to change in 2024, with a more positive turn in the global macro environment and booming domestic demand.

Steel demand in India remains strong, supported by the government's infrastructure spending.

In the coming year, strong volume growth in steel is anticipated driven by a rebound in global steel spreads. Steel companies could also see stronger volume growth in the second half of FY25 on increased construction activities.

In a recent media interaction, Tata Steel CEO and MD T V Narendran, said that demand for steel is expected to grow, backed by the government's focus on infrastructure development.

He announced the company has plans to invest Rs 100 bn every year to increase its capacity by 1-2 million tonnes to maintain its market share.

Tata Steel has already spent Rs 86.4 bn as capital expenditure in the first half of the financial year against the allocated Rs 160 bn for FY24, in line with its annual guidance.

Earlier in August 2023, Mr Narendran had said 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.

Looking ahead to 2024, Tata Steel plans to augment production by adding 3 to 8 million tonnes at Kalinganagar and 5 million tonnes at Angul. The downstream sector will witness significant investments. Gamharia has also been earmarked for strategic investment.

To know more, check out Tata Steel's financial factsheet and latest quarterly results.

#2 UltraTech Cement

Second, on our list is UltraTech Cement.

The company is the largest manufacturer of grey cement, ready-mix concrete (RMC) and one of the largest manufacturers of white cement in India.

The stock was one of the top Nifty 50 gainers of 2023 with a 51% increase in its share price.

This was back on an increase in sales volume. The company achieved 100 million tonnes of production, dispatches, and sales in the financial year 2022-23. This continued in the first half of the financial year 2023 as well.

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

UltraTech has said the demand for cement across all sectors continues to remain strong, which is highly favourable for its performance. Higher infrastructure spending ahead of the general elections in 2024 is expected to further propel cement demand.

The company's ongoing expansion program is progressing as per schedule under which a 5.5 MTPA (million tonnes per annum) capacity has already been commissioned during this financial year, following a 12.4 MTPA capacity addition during FY23.

Last month, the cement major announced the commissioning of a 1.3 MT per annum brownfield cement capacity at Hirmi in Chhattisgarh and a 2.8 MT per annum greenfield grinding capacity at Cuttack, Odisha.

The company also announced plans to buy the cement business of Kesoram Industries to boost its capacity ambitions in a highly competitive sector.

Going forward, the company plans to increase its total green energy share threefold from current 22% to 60% by FY26. The company has been constantly scaling up the green energy mix in total power requirement over the years.

It plans to deploy 500 electric trucks and add 1,000 CNG and LNG vehicles in the 40-tonne category in its operations by June 2025 as part of the government's eFAST initiative.

To know more about UltraTech Cement, checkout its factsheet and latest quarterly results.

#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. It 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 has continued in 2024 as well. Recently, the company's shares rose to an over an eight-year high after it reported 8.2% YoY growth in coal production in December. The company's coal production stood at 71.9 MMT during the month.

The company has laid out big growth plans. It plans to invest Rs 15-20 billion (bn) per annum towards capex for the next three years. This capex is intended to increase its coal mining and washing capacity, improve its rail infrastructure, and set up thermal and solar power plants.

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

In a bold move to diversify its operations and integrate further into the value chain, Coal India (CIL) is also targeting the acquisition of lithium, cobalt, and nickel assets abroad.

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 Ministry of Coal has set a target for Coal India to produce 1 bn tonnes of coal in FY24. This will be driven by ramping up production and incremental output from existing and new captive mines.

The company is on track to achieve its target of 780 million tons of coal production for the year. The management is confident in achieving its production and dispatch targets for FY25 and beyond.

Note that Coal India is a dividend aristocrat and has a rich dividend history. Since its listing in November 2010, the company has never missed a dividend payment. In the last ten years, not once has its dividend yield slipped below 5.6%.

To know more, check out Coal India financial factsheet and its latest quarterly results.

Conclusion

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 can also be volatile and sensitive to various factors like 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: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...