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SOARING MATERIALS PRICES
A lack of investment in commodity developments for more than a decade, exacerbated by a devastating warin Europe, combined with surging demand for all types of energy and industrial commodities, has seen the Bloomberg Commodity Spot Index hit an all-time high. The Bloomberg Commodity Spot Index, which tracks prices for 23 raw materials, has climbed by 36% this year, and is heading for its biggest annual advance in more than a decade. Separately, the Bloomberg spot energy sub-index has skyrocketed by more than 92% year-to-date, the most since at least 1992, as global inventories have come under pressure. At the same time, a gauge tracking agricultural prices has gained 24%.
MINING CAPEX AT 15-YEAR LOW
Capital expenditure by large oil and mining companies is down to a 15-year low, despite a 40% rise in global commodity consumption over the same period, according to a new report by investment firm GMO. Underinvestment in supply will impact production for at least the next decade. Over most of the last decade, commodity prices have been falling or low. Commodity producers, reacting to low prices and criticism that they had overinvested during the China-driven commodity supercycle, slashed capex significantly. “In short, current capex levels are totally insufficient if we are to meet growing global demand,” the group says.
Most groups are modelling significant supply deficit from 2023-2030, of around 20%. While the spot market might pull back in price, strong producer pricing will continue to rise. It’s important to note that the spot market reflects a very small amount of product. Most lithium is sold via contracts. Earlier this week producer Allkem (ASX:AKE) announced the average price received in the June quarter would be 14% above prior guidance at US$40,000/ton sales of ~3,500 tonnes. At current lithium prices, all producers are generating peak cycle returns, yet share prices are implying prices of $US18,435- $US23,716/t LCE, according to financial services company Jefferies. That’s a 70% discount to current prices. Pilbara Minerals (ASX: PLS) this week pointed to the ongoing strength in the auction price it is receiving via its website for spodumene concentrate.