2020 was a forgettable year for many UK shares, but some thrived. For example, industrial metals, which gained unexpectedly as China’s government spending took off. FTSE 100 shares in this sector mostly rose as one.
More recently, the commodity rally got broader.
As Covid-19 vaccines were developed, oil prices joined the party. Brent crude is now at almost double the levels it was at in November last year.
Now precious metals’ price have started rising again too. Rising inflation and a big enough price fall quite likely makes them attractive again. They have been somewhat out of favour as investors turned bullish in late 2020, after running up earlier in the year.
Whichever way we look at it, commodity prices are strong. This ties in with the idea of a commodities supercycle under way. A supercycle is a long-term, sustained increase in prices. I think this is great news for UK shares in commodities.
Here are 10 stocks I would consider buying, divided into three categories:
#1. Precious metals’ glitter
The FTSE 100 gold and silver producer Fresnillo delivered strong results earlier this month and even increased its dividends. The FTSE 250 gold miner Centamin is another one to consider. Its share price has fallen from 2020’s highs and its dividend yield is an eye-popping 9% right now.
The Chilean miner Antofagasta is focused on copper, but also produces gold. With both precious and industrial metals in demand, 2021 and the near future is a double-win for it.
#2. Oil producing UK shares gain
FTSE 100 oil biggies BP and Royal Dutch Shell had an awful 2020, with losses and dividend cuts. They are back in the game, though, with the sharp rise in crude oil prices.
As the economy recovers, oil demand could stay strong keeping prices buoyed. Even though they are not high-growth stocks, their dividends are far more attractive when their prices are at least stable. A strong market for oil in the foreseeable future should ensure that.
#3. Industrial metals boom continues
Industrial metals demand was strong, and will likely increase because of the huge US fiscal stimulus. FTSE 100 miners like Rio Tinto, Anglo American, BHP, Glencore and Evraz are poised for more gains, based on this.
I want to mention Anglo American in particular here, which is also a big platinum producer – both a precious metal and one that can be used in electric vehicle (EV) batteries. EVs are expected to be dominant in the future, which could bode well for it.
Risks to note for these UK shares
Before investing in these UK shares, though, I think it is important to consider the risks involved in buying each of the stocks. For example, Antofagasta with an expensive earnings ratio of over 50 times may see some share price fall. Oil companies’ long-term future still depends on how well the pivot to climate-friendly energy sources. And industrial metals’ miner Glencore’s shares suffered from corruption charges in the past.
In summary, the big picture is a good starting point. But before buying these UK shares, I would also look at their individual stories.