I still don’t buy the whole “underinvestment” theme. Most of the major bulks and metals that I track are in fundamental oversupply. Supply was temporarily hit by COVID and excess demand in goods.
But that is all a by-the-by now. Two other factors have swamped this context. Reflexivity is one and the Russian embargo is the other. As temporary inflation popped with COVID-stimulus traders began hoarding commodities because other traders were hoarding and shortages developed. The Russian war has now given that a real underpinning in the medium term. TD Securities has the note on the first.
A supply crisis is reverberating across commodities. Following a decade of underinvestment, several are faced with little spare capacity and with critically low inventories as a buffer. Yet, the conflict in Ukraine can dramatically savage commodity supply. What is baked in?
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
