Over the past week, Anglo American (LSE:AAL) shares have popped by 14.44%. The move higher has erased all of stock’s losses from the last year, meaning that the FTSE 100 share is now up 7% over this time period. Given the size of the move in such a short time, it’s important for me to understand what’s driving this.

Commodity prices jumping

Anglo American is a global mining company, with large scale production of platinum, copper, nickel, iron ore, and more. Part of what drives revenue for the business is the sales price of the commodities. The higher the market price, the larger the profit margin for Anglo American.

So when I look at the performance of some precious metals and other similar products over the past month, I can see why the stock has rallied. For example, copper is up 8.4%. Platinum has jumped by 4.5%, and nickel is up 3.7%.

China back on the map

Of course, the move in the share price has exceeded the jump in the commodities. But that’s where another factor comes in. Part of the reason why we had the spike in prices was the announcement last week about China stimulus measures. This included cuts to interest rates and other fiscal changes that are designed to spark economic growth.

It’s no surprise that China is one of the world’s largest consumers of copper, nickel, and iron ore. This is mostly due to the need for them in the manufacturing and construction sectors. Put another way, a China spark would see higher demand for these metals and related commodities.

Therefore, the Anglo American share price jumped not just because of the rally in commodities, but also due to the optimism around potential future demand from China and how this could benefit the company.

Direction from here

The stock is still comfortably far away from the 52-week highs from this spring above 2,800p. Yet I think that the momentum behind the stock could help to fuel a rally towards this level in coming months.

I think the support for the Chinese economy could really help to get things going again, especially with comments that the government could offer more support packages. Anglo American is well-positioned to take advantage of any demand spike.

Further, the firm is in good financial shape. In the annual results from July, it spoke about how the continued push to reduce costs is working. It’s on track to reduce annual costs by $1.7bn by 2026. At the same time, net debt for 2024 stayed basically unchanged from 2023 at $11.1bn. This is 1.1x annualised EBITDA, so certainly not a high level.

Of course, a risk is that this is just a short-term pop. If data from China starts to disappoint, or if commodity demand falls again, Anglo American stock could falter. Yet ultimately I think this could be the start of something long lasting, so am considering adding it to my portfolio.