He neglects to mention the missing piece of this puzzle... uranium. This is the commodity that will allow them to produce carbon free aluminium and power those electric vehicles.
Rising tide will no longer lift all commodity boats. Plus, the political risks now facing Canadian bank investors
"BofA Securities commodity strategist Michael Widmer has noted a change in tone in resource sectors towards a less investor-friendly environment, and this includes potential market pitfalls surrounding iron ore and copper miners.
“The current environment reminds us in many ways of a classical bull market pivot,” Mr. Widmer wrote. “Prices rally, even though risks have been building, a combination that puts further [commodity price] upside at risk.”
Slowing post-pandemic global growth and efforts by Chinese officials to re-organize the commodity-heavy segments of their economy (described as ‘heavy handed’ by BofA) are the primary reasons for concern for investors in resource sectors.
In China, August steel production was reported 16 per cent below May levels as regulators rigidly enforced emissions guidelines. This is the main reason Mr. Widmer slashed his forecast for 2022 global iron ore prices by 45 per cent, to about 10 per cent below current levels.
The Chinese government is also attempting to reign in mortgage lending, as the Evergrande crisis clearly shows. Property construction is responsible for 53 per cent of Chinese steel demand and 51 per cent of zinc demand, so total demand for these commodities is now less assured.
Mr. Widmer reduced his 2022 target price for copper by 21 per cent (to US$4.47 per pound, marginally above current levels) in the belief that global economic growth has already peaked in year over year terms. He notes that the copper price is already trading slightly above where global manufacturing indicates it should be.
There remains pockets of commodity markets with far more bullish outlooks. The growth of electric vehicle sales has created a supply deficit for nickel and BofA has increased its 2022 price target by 45 per cent as a result.
The forecast for aluminum is also promising. China is increasingly suffering electricity shortages that have limited aluminum production and global supply should remain tight, supporting the commodity price.
We appear to have reached the point where the rising tide of worldwide growth will no longer lift all commodity boats, at least according to Mr. Widmer. Investors in resource sectors should be more selective in terms of which specific commodity drives their portfolio returns.
-- Scott Barlow, Globe and Mail market strategist"