Winners and losers
US Global Investors (usfunds.com) have just produced their annual Periodic Table of Commodities Returns, which is always an interesting study. Top of the pile in 2021 will not make the eco-warriors happy, because with a return on the calendar year of 160.61%, it was old king coal. Second and third, with 55.01% and 46.91% returns, were crude oil and natural gas. Then came the expected metals – aluminium, zinc, nickel and copper, followed by corn, wheat and lead – all with a positive, although not necessarily spectacular return – and the sorry tale of year-on year losses were suffered by the precious metals (including PGMs) with palladium wearing the dunce’s cap at minus 22.21% for the year. It is important to bear in mind that the table does not include things like cobalt or lithium.
What can this tell us? Well, first, it’s probably not so surprising that the fossil fuel commodities performed so well, if you think back to the beginnings of covid and the attendant lockdowns; nobody was going anywhere, lots of industrial operations were closed or on short time and for a period shipping was reduced. Prices of those commodities were hit hardest. So when the world began to open up, bit by bit, they were starting from a very low point, making the impressive returns understandable. Also, despite my flippant reference to eco-warriors, the truth is that whatever politicians may say, the world is struggling to contain its dependence on fossil fuels. The UK, particularly (until we talk about off-shored production…), and some other European states may be offering substantial carbon-cutting numbers, but while the big three – China, India and the US – continue on their course, frankly, Europe is a sideshow. The serious restarting of economies we are experiencing suggests to me that – I’m sorry to say it – the likelihood is that we are in for another year of solid price movement in energy commodities. As I’ve written before, sadly I don’t think governments have managed to get their minds around what sort of investment is needed – and has been for years – to replace fossil fuels anytime soon, despite all the bullish talk.
Looking at the metals, I am slightly surprised that aluminium was the biggest gainer, although again, it started from a pretty low base, so perhaps it’s understandable. Also, although I am prepared to be corrected on this by those who are in closer day-to-day touch than I am these days, I have a suspicion that the storage trade may be exerting some upward pressure. We shall see.
I’m not really going to comment on zinc – as those who know me may confirm, I’ve never really been particularly clear on what moves the zinc market; well, we’ve all got some lacunae. Nickel and copper, though, are interesting. These are the two metals amongst our sample that should benefit most from the shift towards electrification of more and more bits of our world. Nickel has struggled over recent years, particularly at times in comparison with its half-brother, cobalt. One reason for that is the different structure of the markets; cobalt is produced in “difficult” locations, and by a pretty limited number of players. My interpretation of that is that the market is less transparent. But the main issue for nickel has been the level of LME stocks. Now that that number is dropping in a reasonably consistent way, I do expect nickel finally to see another strong annual performance; we’ve seen big numbers before – arguably, artificially inspired, I accept – but the fundamentals are now aligning nicely.
And so to copper. I am still confident that copper will be the biggest beneficiary of the shift to electrification, and demand will continue to outstrip supply, which leaves a big hole for recycling to fill. My expectation is that it will be an outstanding performer in this year; but, I also know that making predictions is a fool’s game, so I’ll just comment that I expect a strong year for industrial commodities – barring another unforeseen hiccup in the world’s progress – and hope that if I’m wrong, everybody will have forgotten this article by then…………