Be cautious of sharp increases in commodity prices at year-end

The global raw material commodity market saw overwhelming purchasing pressure in the last week, according to the Mercantile Exchange Of Vietnam (MXV), with 26 out of 31 commodities suffering price increases. The two primary groups contributing considerably to the overall market recovery are industrial materials and energy.

Ms. Bui Hoang Minh, Head of Analysis at HSC Securities, claimed that the surging oil prices were the highlight of the previous week. Despite the fact that the US Dollar Index (DXY) continued to grow substantially from August to September, it had little effect on the market's construction of new high price levels for key commodities. Notably, oil prices for Brent crude surpassed $95 per barrel at times and topped $90 per barrel for US WTI crude.

The causes driving higher oil prices are tied to the possibility of sustained supply tightness, as major oil-producing nations across the world stay committed to cutting output. Concurrently, the slow economic recovery in China, along with fears about a comeback in consumption demand, is projected to drive up oil prices. This, along with decreased fears about a US recession and increasing oil consumption by major world economies as winter approaches, means that oil prices are likely to remain high.

Many analysts predict that there will be a supply shortage of more than 3 million barrels of oil per day this winter. As a result, oil prices are projected to continue high.

Despite swings in the US stock market over the last month, equities in the oil and utilities sectors have continued to grow, providing considerable support to the market and increasing the profitability of oil businesses. During the current market turmoil in Vietnam, equities in the oil and gas industry did strongly as well.

"We believe that the supply shortage has created investment opportunities for large global investment funds, and they anticipate that the oil and gas sector will become a long-term value stock in the new economic cycle, when energy security takes precedence." While various renewable energy alternatives exist, weather-related variables and energy security concerns for renewable energy cannot entirely substitute for the usage of fossil fuels such as oil and gas. As a result, equities in this industry are thought to have long-term worth and demand significant investment," evaluated Ms. Bui Hoang Minh.

In Vietnam, there are also new projects with huge hopes, such as the slow commencement of the Block B O Mon project, which is planned to spend around $11.7 billion and would rejuvenate Vietnam's whole E&P (exploration and production) industry.

Sugar prices, according to HSC specialists, have lately climbed to their highest levels in 12 years, presenting potential for the sugar producing industry in the context of the commodity price emphasis. Typical equities, such as QNS of Quang Ngai Sugar Company, have improved significantly in terms of fundamentals and cash flows. As a result, investing in various commodity prices now still gives substantial prospects.

Looking back to August, the market provided possibilities for investment in the fertilizer industry, with stocks such as DCM and DPM seeing significant gains before handing out large cash dividends. Companies in this sector aggressively aim to strengthen their financial foundations and preserve considerable cash balances during periods of high commodity prices.

HSC thinks that investors interested in commodity-related firms should attentively observe price signals and study fundamental research to determine stock value and future potential. Because prices can increase quickly, but they can also fall quickly, as seen in 2022.

"For example, last year, when oil prices surged to $130 per barrel, it created a significant highlight for the oil and gas sector, but it later fell to around $60 - $70 per barrel, leading to a rapid decline in stock prices within this sector," noted the HSC expert.

It is clear that the world commodity and financial markets are now volatile. It is not just investors who must closely monitor the market; companies must also seek out the best solutions to their input cost difficulties, as it is not possible to shift all of this pressure onto customers.

Even if consumption demand increases, profit margins in the petroleum industry may still decrease, necessitating the implementation of cost-effective cost management solutions, including currency risk protection measures. Businesses must also actively monitor the dynamics of the global crude oil market in order to prepare for expanded reserves and assure a consistent supply.