Updated: Apr 21
Investment Insights by Noel Ong, Samso
Commodity price movements are something that continues to baffle investors. The pandemic has created both chaos and also one of the strongest moves in commodity pricing for decades. How is this possible?
The commodity price movement is making the mineral exploration sector soar right now. This is clearly represented by the price charts in Figure 1 below.
Figure 1: A summary of metal pricing since the Covid-induced crash in March 2020. (Source: www.lme.com)
Before the onslaught of the pandemic, the common narrative on metals such as nickel and copper was that there was a shortage at the LME (London Metals Exchange). This means the pricing must soon reflect deficit. But when that did not happen, it left a lot of investors baffled.
You can understand the reason for the market excitement when you look at the ASX 200 (Figure 2). (This is now currently higher than the high prior to COVID, at the time of writing). Recovery was observed in all sectors. Rick Rule, Senior Managing Director, Sprott Inc., and President & CEO, Sprott U.S. Holdings was also surprised at the rate of recovery. He is someone I turn to for these conversations to get insights:
Mr. Rule mentioned that he had underestimated the rate of recovery, but I think the pull back in gold price earlier this year shows that even the market knows that things are moving too fast for its liking.
Figure 2: ASX 200 chart for the last 5 years. The S&P/ASX 200 (XJO) is Australia’s leading share market index and contains the top 200 ASX listed companies by float-adjusted market capitalisation. It accounts for 88% (December 2020) of Australia's equity market. (Source: www.marketindex.com)
The current mood among industry people now is that the market is slowing down. For me, slowing down is actually a good sign. I offer some clear insights on why this is so.
Here are some clarifications on the optimism in mining in the future of world economic growth. The electrification of the world is already here and with the onset of the Green Movement, I am expecting to see a lot of pivoting of businesses. Also, with the need for the basic building blocks of mining and changing the way people do things will create more anti-electric actions. The minerals involved in the EV revolution, as well as the lesser-known metals such as Molybdenum, Nickel, Copper, Aluminium and Silver that are required to build the infrastructure to create the new world. With an increased need for metals for 'clean energy', I see a greater demand than supply can provide.
Mining is no walk in the park. It is a complicated process and made even more so by the process of proving mining viability and maintaining its sustainability. Factors such as ESG (Environmental, Social and Governance), Sovereign Issue and an artificial demand to make the EV revolution happen are going to lead to a big strain on supply.
Today´s Insights takes a deeper delve into:
1. Molybdenum - one of the quietest metals in the recent commodity rush that is now treading at levels near the last iron ore boom of 2010
2. Copper - an important indicator of market progress
3. Tin - a humble metal forgotten from the past that is set to play a more important role due to the effect of ESG
I have been in the mineral resource industry for 30 years and he is prudent about whether a run of good fortunes in the industry can last. I have seen enough boom-bust cycles in his time as an exploration geologist, so he prefers to hold the horses on jumping for joy at any market rise.
Clear information that is balanced and sustained by the experience and knowledge of thought leaders in the industry can help investors make well-informed decisions. Read today's Insights to learn more about the movement of commodity prices and the myriad of factors at play here.
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