Is technology driving a new era in commodities?
Commodities have seen a lot of action lately and it certainly hasn’t all been good.
Things have, however, started to calm down a little and US crude was trading 57 cents up on Wednesday (9 December) at $38.07 a barrel, while Brent was up to $40.74. But mining stocks were troubled with Anglo American, for example, slumping 10 per cent to yet another all-time low, reports from Reuters confirmed.
Analysts are looking to the Chinese yuan as a major issue, with Angus Nicholson, market analyst with IG in Melbourne, telling Reuters: “A weakening of the [Chinese yuan] sounds alarm bells for the many exporters that worry that Chinese demand will be dampened by a weaker currency.”
A new demand?
The currency issues are certainly something to take into account, particularly in the near-term. But on a longer-term basis there are some interesting developments emerging in commodities that signal something of a change in direction.
While traditional commodities are often associated with heat, fire and industrial intensity, commodities of the future could be more heavily influenced by the slick design of the latest smartphone or the smooth hum of an electrical vehicle.
High tech resources
Prices for oil, steel and coal, the ‘traditional’ commodities we mentioned earlier, are hovering at multi-year lows. But the new set of high tech resources are looking set for a positive run.
Things like lithium, cobalt and graphite – materials needed for the manufacturer of items like smartphones, electrical cars and the batteries needed to power them – are at the core of this new set of high tech resources.
The Financial Times reported that Goldman Sachs has described lithium as the “new gasoline”, going so far as to forecast that demand for its use in electric vehicles could grow 11-fold by 2025.
An undefined future
One of the most interesting aspects of the developments here is that the future really is yet to be written. We’re not just prediction the evolution of what we can see now, we’re also looking at industries that don’t even exist yet; the pace of change in the technology sector is exponential and we just can’t say what will be in demand among consumers when it might not even exist yet.
Dion Vaughn is the chief executive of Metalysis, a company determined to supply this new technology-driven demand for commodities. He told the FT that traditional mining firms have been forced to slash billions from their budgets after facing a major and somewhat unexpected change from technology.
“We are at the start of a revolution,” he said. “It doesn’t mean that aluminium is about to disappear but the order of things is about to change. There will be new winners and losers.”
There have already been some sizeable shifts in the markets. While oil has been steadily falling, lithium, for example, has risen by around 15 per cent in price this year. Given that lithium-ion batteries already account for the vast majority of those used in electric vehicles, it’s clear that there is an already substantial but also growing market primed to drive this increase in price yet further.
With developments in transport technology running alongside the already high-turnover technology industry, it seems inevitable that demand for new raw materials is set to grow over the coming years. So far the pattern would suggest that price gains in the commodities markets are shifting to reflect this with the new technology-driven commodities seeing strong gains while traditional materials level off or decline; it will certainly be interesting to monitor just how this trend continues and whether or not it becomes established as a new era, or simply a passing trend.