Materials Risk

The best performing commodity of 2021 is a raw material that most people will never have heard of – iridium. For a precious metal, iridium has achieved the types of returns that gold and silver investors could only dream of. Since the start of 2021 the price of iridium has increased by 140% to $6,300 per oz.

So whats behind the spectacular surge in prices?

Around 250,000 tonnes of iridium are mined each year with South Africa accounting for 80-85% of the worlds iridium output. Iridium is a byproduct of platinum and palladium mining, of which South Africa also plays a dominant role. However, when Anglo American Platinum (Amplats) closed a processing facility last year for several months it inadvertently created a supply shortfall just as the demand outlook for the metal improved. read more

“It never was my thinking that made the big money for me. It always was my sitting.” – Jesse Livermore

The greatest investors and traders always highlight the importance of one attribute in their success, one behaviour that separates the greatest, from the merely good. The ability to know when to do nothing – the courage to sit tight.

Always wanting to do something, anything is what gets us into trouble. It’s why buy low, sell high is so difficult to do in practice. Instead, we buy at the peak of the market (afraid that we’ll miss out), and sell at the bottom of the market (afraid that we’ll lose even more). read more

During the first quarter of 2021 Chinese commodity import demand has been incredibly robust. Iron ore and coal imports increased by 7.9% and 9% respectively compared with Q1 2020. But that was small beer compared with what happened with agricultural imports. Soybean imports rose a respectable 19%, wheat imports doubled and shipments of corn into China surged 5-fold!

Naturally part of this is a base effect related to disruption early in 2020, part of it relates to lingering logistical delays problems (Chinese port delays) and some will be due to production problems (for example, rain in Brazil delayed the soybean harvest). The rebound in construction and manufacturing activity will also have supported import demand for commodities. According to the Caixin/Markit PMI survey, Chinese factory output in April grew at the strongest pace in four months. read more

“Success in any endeavor requires single-minded attention to detail and total concentration.” – Slick Willie, bank robber

According to Peter Lynch, former head of Fidelity’s Magellan Fund, the main reason for his success was that he only invested in what he knew, and he only knew about it because he had taken the time to learn about it. Lynch suggests that an investor not doing their homework is akin to betting large in a casino before even checking what cards they have been dealt: read more

Commodity market analysis tends to start with the demand story. That suits the narrative that most investors are willing to delve deeply enough to understand. I’ll get to the compelling demand story later, but for this article I’m going to start on the supply-side. You see, this commodity exposed market is likely to experience such constrained levels of supply growth that it only needs a marginal increase in demand to send prices (freight rates in this case) significantly higher and remain there for a prolonged period. read more

“People are always asking me where is the outlook good, but that’s the wrong question. The right question is: ‘Where is the outlook most miserable?'” – Sir John Templeton

You would be a fool to venture into markets left for dead after a prolonged bear market. You would face ridicule and be barred from local social events (garden parties, charity fundraisers) if you discussed assets deemed too politically or socially abhorrent. Your sanity would be questioned if you opined that the day the bombs started to fall was, ‘A good time to invest in the stock-market’. read more