Alphinity trims commodities exposure but backs copper and US steel
Alphinity has been trimming its commodities exposure across Australian Equity funds as earnings upgrades slow, though it still backs copper and US steel. The firm recently conducted research trips to China and the United Arab Emirates, which shaped its outlook.
Reduced positions in base metals and oil
The funds maintain selective exposure to copper and US steel but have lowered it overall. Alphinity holds a neutral stance on oil and gas, noting that geopolitical risks can swing outcomes sharply in either direction, making conviction difficult. The strategy includes a long position in oil refiners.
Stephane Andre, co-founder and portfolio manager, said the steel situation in the US remains positive. Strong demand and import supply constraints benefit companies like BlueScope. The firm has become more selective on commodities and reduced its overweight stance since February 2026.
Andre cited changing conditions since the Iran war began. Inflation fears have risen, the US dollar has strengthened, and demand has softened. These factors increased downside risk to earnings growth expectations for the sector.
“In the past, commodity demand was largely driven by China,” Andre said. “Now much of the demand growth stems from the energy transition and AI-related investment in the US, which is running at unprecedented levels.”
He stated that copper is tight, but inventories are building in the US. The market will move from deficit to oversupply next year if aluminium supply returns from the Middle East and Indonesia. Andre believes the risk is skewed to the upside, supported by tight medium-term demand-supply fundamentals.
Turmoil in the Middle East and China
Alphinity assesses the impact of the blockade on the Strait of Hormuz, which disrupted oil and LNG tankers. Brent crude surged past US$100 this year. The firm met with the Abu Dhabi National Oil Company to evaluate flows.
Read Also: Private investors prioritize fund structure over managers in volatile markets
Andre noted that reported data on flows did not reflect reality at the time. ADNOC stated that flow was back to 85 per cent of pre-war levels, supported by agreements with Iran and Saudi Arabia. Facility repairs are underway, but re-escalation and low strategic reserves are pushing the risk premium up.
China’s role in global commodities has shifted. Andre said the country faces domestic headwinds, including a weak domestic economy and low consumer confidence. Property prices and activity are declining from a lower base.
“Exports, however, remain very strong and are the main growth engine, driven largely by the AI supercycle, semiconductors, autos and manufacturing equipment,” Andre said.
He added that the government is focused on the new economy and accepts the pain of transitioning from old to new systems. Strong funding support across the AI value chain ensures no intention to slow this transition.
Iron ore and pricing pressure
Iron ore presents a more challenging outlook. Demand is soft to declining as supply increases from Simandou in West Africa. Prices are falling to force marginal supply closures.
The China Mineral Resources Group has pressured Rio Tinto and Fortescue to negotiate discounts. Andre described the situation as having lower demand, raised inventory levels, and high freight costs compressing FOB realised prices. Diesel cost headwinds also affect the cost line.
