Chris Forrest- Senior Partner and Principal Adviser
Sovereign Wealth Partners
We’ve all been hearing about global supply chain pressures and the impact this is having on the cost of goods and inflation. We should all note, however, that this goes all the way back to raw inputs – not just finished goods.
By all accounts, raw mining products feed into many of the goods we use and consume as well as infrastructure construction.
Recently, we attended a presentation by Ausbil at which slides were presented which neatly captures why commodities will be supported for quite some time to come.
It might also come as a surprise that it’s not pandemic or war related supply shocks which will support commodity prices. Decarbonisation is a major metals consumer and so it comes at a significant financial cost (which may also support inflation for years to come). That’s not an argument against decarbonisation – it’s something to be aware of which we have to accept for the longer-term benefits.
The slides below caught our interest.
- Decarbonisation is more metal intensive than fossil fuels
2. Electric Vehicles are more metal intensive than internal combustion engines
3. Structural underinvestment in mining has constrained supply
4. Inventories have been significantly reduced in key commodities
5. The supply deficit is worsening
6. The size of the gap is staggering
These statistics make it pretty clear that it’s a hard job for supply to catch up to accelerating demand. By some reports, it’ll take 4-12 years to open an ore deposit for production.
That said, this should not be taken as a guarantee that anything you buy in the mining sector will go up, so, before you rush out to buy the next lithium mining hopeful, you should seek advice. After all, everything has a price.