• Trade the underlying commodity by trading the ’futures contract’ for that commodity
• Trading the companies that are directly affected by changes in commodity prices

Trading Companies affected by commodity prices

• Prices – use the Bloomberg website: www.bloomberg.co.uk
• Charts – a good source for free commodity charts is the Future Source site: www.futuresource.com

Sectors

Which sectors may be affected by changes in commodity prices?

• Mining – general, gold, platinum, precious metals
• Oil and Gas producers – Integrated oil and gas, exploration and production
• Oil Equipment Services and Distribution
• Industrial Metals – Steel
• Gas, Water and Multiutilities – water, gas, gas distribution
• Electricity
• Automobiles and parts

Think about how each sector is affected by different commodities. Eg. high oil prices would be good for the Oil and Gas sector, but may have an adverse effect of the Automobiles and Parts sector.

Companies

Once we establish which sectors as a whole may be affected by changing commodity prices our next step is to see if we can identify any individual companies that may be affected more than others within the sector.

Where can we find information about a company’s activities?

• The Selftrade website (formerly Squaregain) : www.selftrade.co.uk ( you will have to register with them on their website)
• Refer to specific company’s website. Eg. Antofagasta’s website is :www.antofagasta.co.uk

Example

Copper prices have been trading up near to record highs – how can we use this information?

The questions we should ask are :

1. Which sectors may this price rise affect?
2. Which companies within the affected sectors may be affected the most?

The mining sector will witness a flow on effect from these high copper prices. Specifically those companies whose core business is copper mining. So which of the mining co.’s has a core business of copper?

• Using Selftrade we can establish that Antofagasta(ANTO) is a copper miner
• After more investigation we can see that it has 3 divisions

1. Copper mining
2. Transpor of freight via rail and road
3. Water distribution

• Further investigation reveals that ANTO’s primary business is copper mining. It owns and operates 3 copper mines all located in Chile.
• Now we know that ANTO is a major copper producer we can compare the copper price and ANTO charts to see how it correlates.

How to use this information?

• This sort of information will help with your big picture trading
• The two charts are correlated meaning that the commodity prices will often act as a leading indicator to the price of the company
• Can offer good day-trading opportunities especially on days where commodity prices make the news headlines.