Fears of rising inflation have started having a tangible impact on many businesses, even those in the FTSE 100. But there are a handful of sectors that can actually benefit from the rising prices. One industry in particular is mining.
Global supply chains continue to be disrupted by the pandemic as well as by labour shortages. As a result, the price of most metals has been climbing substantially over the past year, especially those related to electric vehicle batteries. While product manufacturers are less than pleased, these inflated prices are fantastic news for mining businesses. And with that in mind, here’s one FTSE 100 stock that, in my eyes, looks well placed to beat inflation.
A global leader in resource extraction
Glencore (LSE:GLEN) is one of the top producers of battery metals like copper, cobalt, and nickel, among others. Since the start of the pandemic, some of these materials have reached their highest price point in over 25 years. And so, it’s not surprising to see the Glencore share price thriving while the rest of the FTSE 100 index struggles to recover.
Over the last 12 months, this stock has risen by more than 100%. But looking back to the start of lockdowns in March 2020, the performance is closer to 200%. This explosive growth from what has traditionally been an income investment has pushed the share price beyond pre-pandemic levels. And it’s now close to returning to its highest point in nearly a decade.
As the world shifts towards renewable technologies, I think the demand for battery metals will only continue to rise. And with the impact of Covid-19 on Glencore’s mining activities getting smaller, it looks primed to continue growing, outperforming inflation by a big margin.
Even FTSE 100 companies carry risks
As exciting as the opportunity appears, it’s far from risk-free. Demand for battery metals may not weaken for quite some time. However, elevated prices boost the financial viability for other smaller mining businesses to step into the arena. In other words, supply will undoubtedly start rising. And as constraints on availability begin to loosen, resource prices will naturally fall.
This has happened numerous times throughout history. And with the business ultimately tied to the cyclical market prices of its extracted metals, Glencore shares will start falling again as price inflation eventually reverses.
But beyond this cyclical threat, running a mining business comes with its own host of challenges. Securing drilling permits, complying with country-specific regulatory restrictions, and minimising environmental damage are all expensive. Being a large FTSE 100 business helps makes this more affordable. But if the firm is discovered to be in breach, it could be the target of big legal penalties.
The bottom line
Inflation is often seen as a bad thing. And in most cases, especially for consumers, that’s true. But it also breeds new investment opportunities. Therefore, despite the risks, I am considering adding this FTSE 100 stock to my portfolio to try and outperform the market over the long term.
