A commodity war is brewing; there is not enough copper to meet growing demand - Abrdn's Minter
(Kitco News) - The world could be on the cusp of a commodity war as nations worldwide continue to grapple with growing demand and falling supply of important base metals and critical minerals.
In a recent interview with Kitco News, Robert Minter, Director of ETF Investment Strategy at abrdn, said that investors need to hold some gold as a core asset in their portfolios; however, he added that now is also the time to load up on other commodities, particularly base metals.
Although base metals like copper have been struggling in recent months as global recession fears grow, Minter said that fundamental shifts are occurring within the global economy that will provide long-term support for industrial metals like copper, zinc, and nickel.
Minter said that broken supply chains are forcing many governments to develop their own supply chain of critical metals and minerals. However, as commodities become nationalized, many are starting to worry that there isn't enough supply to meet growing demand needs. He added that this could lead to a commodity war as nations chase down dwindling supplies.
"Supplies of industrial metals like copper are near-all-time low levels," he said. "Maybe we have enough copper to meet current demand, but we can't take any significant demand surprises in industrial metals."
Minter said that the green energy transition has become the world's biggest project in human history. Countries will need more base metals to rebuild their energy infrastructure; however, he added that the question is where the supply comes from.
"U.S., Europe and China are all chasing the same metals used for renewable energy, and there is concern that there isn't enough material for everyone," he said.
Minter described the potential commodity conflict between producers and consumers. He said that in the current environment, commodity prices have to rise to encourage producers to bring more supply to the market. "And unfortunately, it's the consumers who are poorest who are going to lose, who have the most to lose," he said.
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Minter's comments on base metals come as the market struggles to attract investment capital. Copper has been leading the way, with prices falling below $4 a pound. At the same time, Nickel prices, while still elevated, are down sharply from their highs earlier in the year.
Many analysts have said that industrial metals are struggling as recession fears continue to grow. Recession risks are increasing as the Federal Reserve continues to tighten interest rates aggressively to slow down the economy and cool inflation pressures.
Minter said that while the threat of an economic slowdown has risen, it is still not his base case scenario. Minter pointed out that a recession is unlikely as there is still a lot of slack in the labor market when looking at the number of vacancies.
Minter added that with millions of job openings in the U.S., the Federal Reserve still has room to raise interest rates without forcing companies to cut jobs.
"The Federal Reserve has never been in a situation where it could kill 5 million hiring intentions and still not cause one person to be unemployed," he said. "Because of how much money is in the system, bringing interest rates up to 3% or a little bit higher is not going to kill the economy."
Minter said that investors will jump back into base metals once it becomes clear that the U.S. will avoid a recession.