Russia’s invasion of Ukraine is a tragedy and a cataclysm that has sparked chaos in global commodity markets. In recent days, nickel trading was suspended after prices doubled to over $100,000 per tonne, oil soared to $130 per barrel and wheat prices spiked to record-breaking levels. FTSE 100 commodities giant Glencore (LSE: GLEN) seems well-positioned to capitalise on this. Yesterday, Goldman Sachs lifted its price target for Glencore stock to 600p. So, how high can the Glencore share price go? Let’s explore.
Glencore shares reach 52-week highs
The Glencore share price rocketed by 21% over the past month (it’s also up nearly 50% in five years) and currently trades at 511p. The Anglo-Swiss conglomerate is one of the world’s largest commodity businesses, spanning the precious metals and energy markets, with around 150 mining, metallurgical, and oil production assets to its name.
Some economists are heralding the arrival of a commodities bull market and in February, Glencore reported record earnings of $21.32bn and net profits of $4.97bn for 2021. With this in mind, I’ll examine Glencore’s exposure to different commodities and what I think this means for the Glencore share price.
Metals
Glencore’s metals business is primarily focussed on copper, cobalt, zinc, nickel and ferroalloys. It’s a different investment prospect to beaten-up gold mining stocks with significant Russian operations, such as Polymetal International and Petropavlovsk.
Glencore can benefit from rising demand for electric vehicles, which rely on nickel and cobalt as materials for battery production. These metals saw price increases of 161% and 57% respectively from last year. At current prices, nickel would comprise 12% of Glencore’s EBITDA.
However, reports that Beijing is mulling a rescue deal for Tsingshan Holding Group, the company behind nickel’s big short, could send prices tumbling. Although Glencore is diversified across different metals, it’s not just nickel that has experienced extreme volatility in recent weeks. I expect further volatility ahead in metals markets and, by extension, in the Glencore share price.
Energy
Glencore’s energy business is centred on coal production and marketing crude oil and natural gas. Coal prices recently hit a 200-year high. Oil and gas have made similar although less dramatic gains.
North America and Europe are keen to transition away from fossil fuels to green energy sources. This may dampen the long-term case for Glencore shares.
However, demand for these commodities remains strong in Asia, with China, India and Japan making up the largest coal importers. I believe headwinds for the Glencore share price from government climate policies will likely take a long time to materialise.
Wheat
Russia and Ukraine collectively account for nearly 30% of global wheat exports. Glencore is one of the world’s largest wheat traders. Although the stunning rally in wheat prices has boosted Glencore stock, the company recently condemned Russian military action in Ukraine and announced a review of its activities in Russia.
The longer-term consequences of the war for Glencore’s wheat trading business are far from certain.
Where next for the Glencore share price?
Predicting Vladimir Putin’s next move in Ukraine is difficult, but geopolitical stability seems unlikely to arrive soon. For me, this creates bullish conditions for commodities and Glencore stock is a good buy for me at its current price, despite reaching new highs. I believe the Glencore share price may carve a path to 600p in the months ahead, although it may be a bumpy ride.
Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
