Electric Car Batteries, Inflation, and Omicron: Driving Commodity Prices

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Electric Car Batteries, Inflation, And Omicron: To Drive Commodity Prices

  • Some analysts anticipate a commodity super cycle as investors pick commodities as a hedge against inflation
  • Supply chain shortages are expected to drive up demand and price of EV metals and oil
  • Steel production expected to see continued growth despite policymaking in China

Global commodities markets enjoyed a strong year in 2021, especially with more progress made towards global economic recovery from the pandemic. However, mixed perspectives present when it comes to what to expect for the year ahead.

Commodity Super Cycle or Conservative Investment Choices?

Some analysts maintain bullishness with suggestions of a commodity super cycle, with copper and Bitcoin among top choices as a ‘retail inflation hedge’. This is undoubtedly driven by the recent media focus into the new year, of pending central bank decisions to lift interest rate hikes.

However, other speculators prefer to keep a more conservative view, especially in light of current developments with the Omicron wave in leading markets like the US and the UK. Apart from reasons to do with the pandemic, more conservative analysts also recognise the present challenges faced by policymakers as they move to swiftly address inflation concerns.

Seasoned investors have reasons to view gold as a suitable hedge against potentially prolonged economic effects brought from the current Omicron viral transmission wave. Gold’s performance could directly be tied to how the virus stalls global economic recovery — with cautious opinions keeping wary of possible new viral variations to present after the current wave has passed. Similarly to price behaviour at the beginning of the pandemic in March 2020, any wavering of confidence to global recovery could spell a bullish reaction for Gold.

Supply Chain and Omicron as Effects on Upward Price Movement and Demand

Supply chain bottlenecks also present a prominent theme for anticipating price effects across the energy market, and within the increasingly talked-about Electric Vehicles (EV) market. Of course, as a poster child for the wider push for industrial and global decarbonisation, the EV market is but an example of tangible efforts to pursue greener solutions. Continued capital expenditure into green hydrogen infrastructure can also be expected throughout the year.

Among EV-related metals and minerals, nickel, lithium, and graphite provide obvious choices as far as related commodities in demand. As the world’s fifth largest producer of Nickel, Australia and its nickel producers such as Nickel Mines Limited (ASX:NIC) look set to ready themselves in anticipation of a coming boom in demand for the EV battery metal.

Near-Term Expectations for Oil Prices

Despite this unanimous global push towards green energy sources, there remains a present reliance on natural gas and oil which will likely see near-term upwards momentum due to the combination of supply chain uncertainty and rising inflation. Despite the Organisation of the Petroleum Exporting Countries and allies already on track to raise monthly production targets, potential border tensions between Russia and the Ukraine could stand to further exacerbate supply constraints closer to the middle of 2022.

Steel Manufacturing to Forge Ahead Despite Beijing’s Policies

While iron ore and coal remain largely tied to Chinese construction activity, investors would be wise to consider how steel presents as a critical component within automotive manufacturing. With the scaling down of fossil fuel auto manufacturing comes a need to supplement public infrastructure with rail and other transportation projects that will also see a reliance on steel. The auto market presents 12 per cent of global steel demand, and its use within the EV market presents one other reason to expect growth. Additionally, China’s decision to lift foreign investment caps on its domestic auto industry should mean good business for anyone looking to ramp up EV production starting from 2022 onwards.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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