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Higher Tension, Higher Commodity Prices?

On 19th of May 2024, a shocking news was released, a helicopter transporting Iran’s President Ebrahim Raisi made a “hard landing”. Rescue teams were attempting to reach the site but were hold back by adverse weather conditions, including heavy rain, fog, and wind. The following day, the helicopter wreckage was found with no sign of life.


President Raisi was traveling in Iran's East Azerbaijan province, along with Iran's foreign minister. The incident took place near Jolfa, a city situated on the border with Azerbaijan, approximately 600 kilometers northwest of Tehran, the Iranian capital. Later reports placed it farther east near the village of Uzi, but details remained contradictory.


Picture of the helicopter remains


This tragic incident has left Iran without two key leaders as extraordinary tensions grip the wider Middle East. Iran has offered no cause for the crash nor suggested sabotage brought down the helicopter, which fell in mountainous terrain in a sudden fog, or so we're told.


We see that this was quite a coincidence, although we also hope that it's actually that simple and has nothing to do with the current escalating tension. However, we believe it is better to prepare for the worse.



We anticipate that commodity is likely to gain more traction from investor going forward. We see that selling pressure on JCI's big banks still linger, and looking at current condition, there is only so much stocks that are able to receive investment reallocation weight from big banks, one of which is commodity.


We see that since Iran produces around 3 million barrels of oil per day (around 3% of total world output) as the third largest oil producer in the OPEC, crude oil supply would be disrupted and send the crude oil price through the roof. However, when we look at energy prices, the impact was lower than our expectation. Only natural gas that significantly surge higher, leaving coal and crude oil gain insignificant when compared.


YTD energy prices comparison (Normalized. White: coal; Blue: crude oil; Orange: natural gas)


However, we see that metals are having a different situation, most of metal prices are rallying, align with the related share prices as well.


YTD metal prices comparison (Normalized. White: copper; Blue: gold; Orange: silver)


Although China's PMI may have been on the recovery track, we see that oil price hike which caused by limited global oil supply may still be outweighed by slower demand. Therefore, we see metals related stocks may have more momentum to go higher considering metal commodity prices which still climbs higher day after day.


for the proxy to gold and copper, we maintain buy recommendation on MDKA with target price of IDR 3,000 per share. We see that MDKA's current price only reflects Pani’s NPV + MBM’s market cap without accounting for TB copper’s huge resources. While NCKL as the proxy to nickel, is in the free cash flow generation stage with high profitability. Hence, we reiterate our buy recommendation on NCKL with a target price of IDR 1,220 per share.




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