Over the previous week, Anglo American (LSE:AAL) shares have popped by 14.44%. The transfer greater has erased all of inventory’s losses from the final yr, that means that the FTSE 100 share is now up 7% over this time interval. Given the scale of the transfer in such a short while, it’s essential for me to know what’s driving this.

Commodity costs leaping

Anglo American is a world mining firm, with massive scale manufacturing of platinum, copper, nickel, iron ore, and extra. A part of what drives income for the enterprise is the gross sales price of the commodities. The upper the market price, the bigger the revenue margin for Anglo American.

So once I take a look at the efficiency of some treasured metals and different comparable merchandise over the previous month, I can see why the inventory has rallied. For instance, copper is up 8.4%. Platinum has jumped by 4.5%, and nickel is up 3.7%.

China again on the map

After all, the transfer within the share price has exceeded the bounce within the commodities. However that’s the place one other issue is available in. A part of the explanation why we had the spike in costs was the announcement final week about China stimulus measures. This included cuts to rates of interest and different fiscal modifications which are designed to spark financial development.

It’s no shock that China is among the world’s largest customers of copper, nickel, and iron ore. That is principally as a result of want for them within the manufacturing and development sectors. Put one other means, a China spark would see greater demand for these metals and associated commodities.

Subsequently, the Anglo American share price jumped not simply due to the rally in commodities, but additionally as a result of optimism round potential future demand from China and the way this might profit the corporate.

Path from right here

The inventory continues to be comfortably distant from the 52-week highs from this spring above 2,800p. But I feel that the momentum behind the inventory might assist to gas a rally in direction of this degree in coming months.

I feel the help for the Chinese language financial system might actually assist to get issues going once more, particularly with feedback that the federal government might provide extra help packages. Anglo American is well-positioned to reap the benefits of any demand spike.

Additional, the agency is in good monetary form. Within the annual outcomes from July, it spoke about how the continued push to scale back prices is working. It’s on observe to scale back annual prices by $1.7bn by 2026. On the identical time, internet debt for 2024 stayed principally unchanged from 2023 at $11.1bn. That is 1.1x annualised EBITDA, so definitely not a excessive degree.

After all, a threat is that that is only a short-term pop. If knowledge from China begins to disappoint, or if commodity demand falls once more, Anglo American inventory might falter. But finally I feel this could possibly be the beginning of one thing lengthy lasting, so am contemplating including it to my portfolio.