Expert view: Which commodities will see strong price rises in 2021?
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As 2020 winds up, Stockhead has reached out to its pool of contributing experts for their view on what they hope 2021 will bring. Today’s question is: Which commodities will see demand and strong price rises in 2021 and why?
Nickel: US$18,000 by late CY 2021. High demand for sulphide derived Ni with Increase in use in EV from 3-12% over next five years resulting in a deficit of between 50-60t tonnes by 2025.
Uranium: US$45/lb by late CY 2021. Shorter-term concerns over COVID-19 and resulting supply cutbacks and more favourable supply and demand fundamentals. Industry consensus that the demand picture has improved significantly in recent years while more supply constraint is taking place by producers.
We expect gold prices to surpass $2,500 USD in 2021 – largely driven by USD weakness and rising inflation. This will see a “commodities boom” as iron ore, copper, nickel and silver follow suit. Uranium is also in focus, following a large push by governments to shift towards “emission free” renewables.
Silver – it is still a long way from its all time highs.
Gold. If this bull market for gold is anything like previous bull markets, then expect gains within a year to have the potential to be strong double digit percentage numbers.
Others will have more insight than me, but for what it is worth I still like gold and we maintain an allocation to a handful of Aussie producers in the Emerging Companies portfolio; Saracen Mineral Holdings (ASX:SAR), Ramelius Resources (ASX:RMS), Silver Lake Resources (ASX:SLR).
Like central banks, I can’t see governments putting any hurdles in front of the economic recovery with contractionary fiscal policies, and with borrowing costs remaining low, I think it goes the other way with governments fuelling the recovery with further large deficits.
Copper, nickel and gold
Approximately 90% of the world’s supply of rare earth minerals are controlled by China. This is a critical component for the manufacture of electronic products.
With an expectation of continued trade tensions between China and the rest of the world in 2021, the restriction of rare earth exports as a potential political pawn is a possibility. This scenario would see a spike in prices as buyers seek alternative suppliers such as Australian-based miners Lynas (ASX:LYC), RareX (ASX:REE), and American Rare Earths (ASX:ARR).
We saw some bullish moves from gold in Q3 of this year, and it’s expected that it will continue to grow in 2021. Not only is gold used to hedge against pullbacks in the equities market, but it’s also used against a weakened dollar. With stimulus packages expected at the end of 2020 or early 2021, this will only weaken the dollar further.
We may also see investors go risk-off and invest in gold as a safer investment, rather than picking volatile stocks.
Rare earth, lithium, cobalt and alternative battery/electric vehicle commodities will see huge demand growth projections of markets doubling, and then doubling again globally, spurring a supply response – think how many Tesla mega factories are going to be added.
But beware China’s propensity to drive up supply ahead of demand growth, often resulting in lower commodity prices – often a case of profitless prosperity, and regularly giving Chinese firms playing the long game the opportunity to gain control of development projects suffering a cash-squeeze.
I’d speculate that we might see a lot of interest in the green ammonia space in Australia – think Incitec.
Crude oil is now a COVID sentiment driven commodity (despite the weak fundamentals), but people are suckers for going for a drive. Perhaps crude oil could be seen as a proxy (lead indicator) of economic recovery?
Gas (LNG) although can’t be exchange traded directly, but all of the industry has cut back on infield expense – not just exploration drilling, but the bare minimum decline mitigation investment and that can only lead to supply tightness… rising demand/constrained supply can only lead to one thing – gas prices going up.
Precious metals – gold, silver, palladium – should all do well. Base metals – copper, nickel, zinc – should also do well.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.