Categories: General Market Commentary
Topics: General Market Commentary

Are Commodities Bullish or Bearish?

Editor’s Note: Please see the below excerpt from the March issue of Foundational Profits that likely answers many of the head-scratching questions you’re having about the current commodity market. 

—Nick

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“But I guess there's worse things we could be — Instead of two we could be three. Me and him, Him and me.” —Shel Silverstein, Us

Is copper bullish or bearish? 

Depends on the timeframe. 

Copper, like the entire CRB Commodity Index, is in a long-term uptrend that began in 2020. But in the shorter-term, it’s undergoing a correction and consolidation commensurate with the slowing growth we’re seeing in the economy. 

That shorter-term process won’t be complete until we get back (or at least closer) to economic growth. And that’s still a few quarters away — a timespan during which we could see copper get more comfortable at $3.50 than $4.50.

And yet, those short-term setbacks aside, copper demand is still poised to increase more than 50% by 2040 — from ~26 million metric tons to ~39. 

And as a result the global copper supply deficit is expected to worsen throughout the balance of this decade and most of the next. By 2031, there is expected to be a global copper supply deficit of six million metric tons annually.

It’s a similar two-sided tale with other commodities. 

Lithium carbonate prices, for example, have come down from their highs north of $80,000 per metric ton last November to currently trade near $45,000 per tonne. This is looking to be isolated in terms of geography and duration. According to a February 21st article in the Financial Times: 

...lithium for delivery to the US and Europe has fallen far less, only dropping 10 per cent to $70,500 per tonne over the same period, according to Fastmarkets.

Scotiabank, which started coverage of the lithium market last month, said the recent sell-off for lithium equities was mostly unjustified because there would not be enough new supply even as lithium demand eased from “super-growth” to “high-growth”.

“While the year ahead has a slight chance to see temporary softness in lithium spot prices, beyond 2024 we are stumped as to where supply will come from to satisfy demand,” it said.

Rinse and repeat for rare earths, with NdPr Rare Earth Oxide in China falling from $101,000 per metric ton to $89,674 per ton year-to-date. The attributed reason here was jawboning from Tesla at its recent investor day that its next drive unit will use a permanent magnet motor that doesn’t rely on rare earths. But the comments are being taken with a grain of allowance considering Tesla didn’t say when that might be or what will be substituted for the rare earths. 

For our part, we’re using the near-term softness to establish and build positions for the medium- to longer-term. 

See what we’re buying here.

Nick Hodge
Publisher, Resource Stock Digest