Chart of the Week

Industrial metals started the year on a positive note, and in our view, a key driver was renewed interest in commodities by both investors and governments around the globe. As discussed in our January 14 State of the Markets report, “The amazing race,” we believe this renewed interest is related to efforts to control the natural resources and, more specifically, the commodities and minerals that are critical for victory in the artificial-intelligence (AI) race.

As shown in the chart, copper demand is expected to outpace mine supply growth and lead to a deficit of roughly 30% globally by 2035. Given the average lead time of roughly 17 years for mine development, this creates a supply-demand imbalance that cannot be fixed overnight. Further, projections for other commodities such as nickel, cobalt, and rare earth minerals show similar trends.

We expect this supply-demand imbalance to be a tailwind for higher industrial-metal prices over the long run, and we also expect a reacceleration of economic growth later this year that should support near-term performance. We are favorable on the Industrial Metals sector and view it as an attractive ancillary to the AI investment theme.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility.

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