What happened

A funny thing happened on the way to the stock market yesterday.

A new report out of S&P Global Market Intelligence Tuesday evening announced that global metals prices are likely to remain above historical averages all the way through 2025. That sounds like it should have been good news for metals companies like Alcoa (NYSE:AA), Century Aluminum (NASDAQ:CENX), and Brazil's Companhia Siderúrgica Nacional (NYSE:SID) -- but in fact, all three stocks were down yesterday.

Red hot molten steel pouring in a foundry.

Image source: Getty Images.

Why did that happen? Reports landed yesterday showed that inflation rates in the U.S. hit a 30-year high, spiking the S&P 500 for nearly a 1% loss, and tumbling metals shares along with the index despite the good, metals-specifics news.  

Luckily for investors in those shares, however, the inflation panic seems to have passed, and today, shares of all three stocks are rebounding:

  • Alcoa is up 11.4%.
  • Century is up 13.4%.
  • Companhia Siderúrgica is up 8.8%.

So what

As it turns out, moreover, these two things are connected. S&P Global Market Intelligence in fact opined on Tuesday that "inflation fears and supply chain concerns" may be the reason why metals prices can be expected to remain high -- and metals stocks remain profitable -- over the next several years.

As S&P Global Metals and Mining Research team research director Mark Ferguson explained, the economy's "rebound from the effects of the COVID-19 pandemic through 2022," combined with "pent-up consumer spending, government stimulus efforts and the accelerating energy transition will continue to drive demand, prices and exploration budgets" for metal resources.

Now what

True, Ferguson sees the greatest prospects for gains in more exotic metals such as lithium, cobalt, and nickel -- and relatively lower prospects for steel (Companhia Siderúrgica) and aluminum (Alcoa and Century). Also true, he noted that metals prices will probably "slip moderately in 2022 from their current highs" as supply chains unsnarl. But even so, demand-driven "medium-term supply constraints" will remain as companies and countries demand ever larger supplies of metal to build out their "global energy transition" to renewable fuels.

It's this, in a nutshell, that is "setting the stage for historically above-average [metals] prices through to 2025" -- and it's the reason Alcoa stock and all the rest are going up today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.