Please ensure Javascript is enabled for purposes of website accessibility

Why Teck Resources Stock Jumped as Much as 13% Today

By Reuben Gregg Brewer – Sep 11, 2020 at 3:55PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Canadian miner got a boost from Chinese demand for one of its key products, with an additional nudge from Scotiabank.

What happened

Shares of diversified Canadian miner Teck Resources (TECK -1.68%) rose 13% in morning trading on Sept. 11. Although the stock gave back some of those gains in the early afternoon, by roughly 3:30 p.m. EDT it was still holding on to a gain of about 10%. That's a pretty good day for a company that's seen its shares fall 25% or so in 2020.

So what

Teck mines for four commodities: oil (via the Fort Hills oil sands mine), zinc, copper, and metallurgical coal. So far 2020 has been a tough year for the company, with second-quarter adjusted earnings coming in at $0.17 per share compared to $0.88 in the same stanza of 2019. After the company noted that all of its mines were running, the second bullet point in its earnings release pretty much summed up the issues Teck is facing: "COVID-19 had a significant negative effect on prices and demand for our products and our financial results in Q2 2020."  

A man watching coal mine machine

Image source: Getty Images.

Since all of its products are economically sensitive, the COVID-19 related economic shutdowns hit Teck hard. Which is, in a roundabout way, why investors were excited today. According to industry watchers, prices for seaborne metallurgical coal were on the rise because of increased demand from China. Although one day doesn't make a trend, if demand for met coal is picking up in China there are potential longer-term positives for Teck, which generated about 45% of revenue from this product in the first half of 2020.   

China is one of the largest producers of steel in the world and a major source of demand for steel-making coal. If the country's steel mills are buying again it could have a material impact on global prices. More important, however, could be that the demand increase indicates the success of the country's reopening process. Indeed, China was one of the first countries to lock down its economy and also one of the first to reopen again. If it has progressed to the point where met coal demand is picking up again, then it isn't unrealistic to think that a similar trend might eventually arise in other countries that also ended up shuttering their economies, only later in the pandemic. Notably, Teck's second-quarter met coal sales were higher than it had originally expected, so an uptick in demand from China isn't out of line with the trends the miner has been seeing more broadly in its coal operations.   

Now what

Interestingly, at least one Wall Street analyst is pretty positive about Teck's future. In addition to the China news, Scotiabank reiterated that it has a sector outperform rating on the stock. That makes complete sense if demand for one of the miner's most important products is, in fact, on the verge of heading higher. Teck wasn't alone in its price jump today, with met coal producers like Warrior Met Coal and Peabody Energy also rising, up about 6.5% each at 3:30 p.m. EDT. But Teck's shares, perhaps because of the added help of Scotiabank, were bigger gainers.  

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Teck Resources Stock Quote
Teck Resources
$32.28 (-1.68%) $0.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.