Magic Markets #292: Commodities are booming - is South Africa?

But let's go back to the core topic we want to discuss this week.

You're right, I was at a conference last week speaking to institutional investors in Canada.

And on the panel that I was part of, we were discussing commodities because commodities are a very important sector to Canada.

Canada is one of the world's largest producers of oil with the fourth largest production and fourth largest reserves.

So that's obviously very relevant right now.

But at the same time, Canada is number one in potash, which is effectively fertilizer.

So it's very important in the agricultural value chain.

We've got a lot of other minerals.

Those are metals, whether it's gold, whether it's uranium on the energy side of things.

And that makes the commodities discussion very important to Canada.

But when I was on my way back from this conference, I said, I come from South Africa.

And South Africa is also a very commodity-exposed economy.

So a lot of what I discussed at the conference is also relevant to a South African audience.

In short, answering whether we are in a commodity super cycle, I kind of went with a slightly more nuanced answer there, simply because we're clearly in a commodity cycle but we tend to name commodity super cycles historically.

You never know you're in a commodity super cycle at the start of that cycle.

But what we are seeing right now are a couple of key themes that are overlapping that contributes to a rally in a broad commodities basket.

And to the extent that those themes continue to overlap, yes, this could become a commodity super cycle, which is determined by duration and the breadth of that rally.

But for now, I prefer to contextualize it in terms of these overlapping themes.

What are those themes? Well, we've got the big data center push, and that ties into electricity and energy, electricity grids.

But at the same time, given the geopolitical backdrop, you've got defense spending, and that filters through into other supply chains because governments, countries actually want secure supplies, reliable supplies of minerals.

And so to the extent that these themes are all overlapping, that's what's giving us this broad push in terms of an overall commodities cycle, if you want to call it that.

Now, if we just look at something like copper, which is tied very strongly into the electrification theme, last year, investment by copper-focused mining companies rose by 8%.

Now, that sounds like a lot, but it's actually catching up with decades of underinvestment.

Then you've got lithium specialists that actually cut their production by around 40%.

So that's very useful as a warning in terms of not treating commodities as a single trade.