- Currencies around the world are being debased as central banks increase money supply to stimulate economies. This is a strong positive for hard assets.
- There’s a lack of visibility in the Chinese policy making process. China is the world’s largest market by far for most metals, making sector investing a tricky game short-term.
- The Chinese economy has slowed from its immediate post-pandemic recovery pace. That makes demand for steel, iron ore, copper, and aluminum highly uncertain for at least the next three months.
- Global Electrification is driving demand for a wide range of metals, particularly those used in batteries. That has strongly bullish implications for copper, nickel, aluminum, lithium and steel as the main drivers of global decarbonization.
Mining is an expensive business: The annual tab for producing the copper, iron ore, nickel, rare earths and other vital resources needed to run the world is estimated at $1 trillion. It’s also a highly capital and energy intensive industry that leaves significant environmental and climate footprints.
That makes cost control a critical element of mining companies’ success. And finding new ways to improve operating efficiency and diminish environmental impact is a central objective of management teams around the globe, especially for the large global mining companies that increasingly dominate this business with scale.
Deep Dive Investing members know the view here: These companies have dramatically improved environmental practices in recent years. And as the hunt for the growing pile of dollars invested on environmental, social and governance criteria heats up, they’ll continue the push, which will remain the main way of extracting resources from the earth in order to fuel economic growth, green or otherwise.
President Biden’s infrastructure plan has been revealed, and now Congress will have its say. As we noted here almost a year ago, an infrastructure plan has been on everyone’s agenda, with the main disagreement being how it would be financed. The secondary issue was what part of the infrastructure was to be improved or build anew.
As expected, the Biden plan is to be financed from higher corporate and other taxes. The plan has also modernized and expanded the definition of infrastructure as was understood until now. The chart below shows the breakdown of how the money is to be spent.
A lot of easy money has been made in the markets so far this year. Although we are positive on 2021, a rigorous investment process remains as important as ever. Deceleration in global liquidity is, in our view, the main risk to equity markets.
China will be again one of the two most important pillars of global economic growth, and the single most important economy for metals. This should come at no surprise to observers of global economic developments, as the current rate of capital formation in China is, after all, unprecedented in human history.
Metals have performed strongly, overall, this year and so have done mining companies stocks. Such performance has attracted a lot of speculative buying in the sector, but this is to be expected. The pretext has been China’s strong economic rebound after the pandemic related demise in the early part of the year.
Mining stocks are the quintessential macro-driven or “cyclical” investment. When the global economy is running
white hot, demand for key resources soars. And so do the earnings and share prices of the companies that seek
out an extract everything from iron ore and copper to platinum group metals (PGMs).
Conversely, when there’s a downturn, demand for metals and minerals is one of the first things to plunge. And
the deeper the economic trough, generally the worse the prognosis for miners’ earnings and investment returns.
Here in mid-2020, the global economy is looking down the abyss of the biggest recession in living memory.
Measures taken to curtail the COVID-19 pandemic have slammed the brakes on activity across a wide swath of
Only unprecedented monetary and fiscal stimulus has prevented an accompanying calamity in the financial markets
so far. But with unemployment soaring, demand plummeting for many products and credit markets tightening,
Q2 is shaping up as the worst period for global growth at least since the Great Depression of the 1930s. And
prospects for a recovery in the second half of the year—or even in 2021—are still highly uncertain.
2020 will be the “Year of the Rat” in China. According to Chinese tradition, the rat is a sign of wealth & surplus. We say, why not view this as a good omen for the financial markets, as we are about to enter what’s shaping up as both a promising and very interesting year.
Just a cursory look at global economic data and political developments is enough to understand what’s needed for metals to perform well next year: