Materials Risk

Whatever your views are on ‘net-zero’ policies, our job as commodity market investors is to assess the risks and opportunities of any investment, irrespective of our own political or ideological perspectives.

It’s with that introduction that I believe we are close to getting a signal as to how governments will look to temper demand for the metals essential for a net-zero energy transition – copper, lithium, nickel, cobalt, etc.

A fast transition to electric vehicles will of course require enormous amounts of these metals, and given the bottlenecks to production, the impact on prices may be so strong that this acts to dramatically slow the speed at which the net-zero energy transition takes place. read more

Renewable energy is no free lunch – both wind and solar power require significant amounts of commodities.

Steel is the foundation stone for renewable energy infrastructure. Each new megawatt (MW) of solar power requires between 35-45 tonnes of steel, while each new MW of wind power requires 120-180 tonnes of steel. Other commodities such as aluminium, copper, polysilicon, plastics, etc. are also needed in huge quantities.

According to the IEA, commodities make up about 15% of the investment cost for utility-scale solar PV, and some 8% for onshore wind (steel comprising the majority of the commodity cost), while freight is also a big cost, especially for onshore wind: read more

According to former geopolitical consultant Marko Papic, the benign geopolitical backdrop of the past 35 years has left investors “woefully underprepared”.

Ever since Mikhail Gorbachev’s 1985 “Leningrad speech”, capitalism became the only game in town. Geopolitics has continued to play a role, but only really in the background, as US hegemony provided a dividend in the form of globalisation, an expansion in the global labour supply and free-market policies.

That changed after the Great Financial Crisis of 2008, as the world has moved towards a multi-polar world in which there is no single centre of power. The book, Geopolitical Alpha: An Investment Framework For Predicting The Future is Papic’s framework for helping people understand and prepare for the geopolitical power shifts underway. read more

One of the most important, yet least appreciated drivers of the next commodity super-cycle lost momentum this week.

This week India’s prime minister Narendra Modi announced that the government will withdraw all three agriculture-related market reforms introduced in September 2020.

In his address to the nation, the prime minister said: “The objective of the three farm laws was that the farmers of the country, especially small farmers should be strengthened, they should get the right price for their produce and maximum options to sell the produce.” read more

“The fault, dear investor, is not in our stars — and not in our stocks — but in ourselves…” – Ben Graham

One of the greatest sources of edge is the one and only thing you have any power over – your own behaviour. If you can keep your head, while everyone else is losing theirs, then you can be there to exploit the mistakes of others and scoop up what is being left on the table.

Behavioural biases are the most persistent source of advantage in financial markets. Yet they are the most difficult to exploit. These biases have always been present and always will; human nature doesn’t change after all. We may think that we have evolved into smart people, capable of coldly calculating the odds of a market crash occurring and bailing out before the first signs of trouble. Unfortunately, our brains are still running with the same software that our ancestors had, thousands of years ago. read more

How can investors make a credible, technology agnostic and profitable difference to climate change?

Up until now the only way that investors felt they could make a difference to the environment was to divest their holdings from companies thought to be responsible for climate change. Divestment, as its known, might look good, and it might make shareholders and employees feel better about themselves, but it does nothing to influence better environmental outcomes. In fact, it can make actually things worse, especially if less ethically conscious private capital fills the void. read more