GS: Long-Lasting Bull Market In Commodities -- January 18, 2021

One thing leads to another. First these two tweets:

There was no source for the graphic, but it probably came from this: Goldman Sachs predicts a long-lasting bull market for virtually all commodities. Link here.

I don't know if folks have started noticing this yet, but in more and more articles there are references to an impending lithium shortage. It's even mentioned in this article. This is a keeper. Archived. 

Highlights:

• oil demand 102.5 million b/d in 2022, prices at $65/b end-2021 
• energy transition to stimulate oil demand, EVs facing lithium shortfall 
• US stimulus to kick-start policy boost for demand globally 

Expanding, from the article:

• "every single commodity market with the exception of wheat is in a deficit today" and highlighted the example of oil, saying capital expenditure in the oil sector had fallen an unprecedented 40% in the first half of the year. He argued that even oil demand would be boosted by spending on the energy transition, due to the volume of oil consumed in the course of green energy infrastructure projects;

• "It's important to separate the vaccine, which is a tactical upside catalyst, from the pandemic itself, which is a structural catalyst to a longer-lasting bull market. As we look out to 2021 the vaccine creates that V-shaped recovery... but looking beyond that we believe it's the beginning of a structural bull market not only in oil, but across the entire commodity complex,"  

I've seen that discussed on Fast Money (CNBC):

• the vaccine: a tactical upside catalyst, whereas,
• the pandemic itself, a structural catalyst to a longer-lasting bull market

Again, from the article:

• Despite a reduction in oil demand for business travel, "we think the market's going to be in substantial deficit throughout the end of next year and beyond into 2022... You have structural under-investment in supply -- we call it the revenge of the old economy. It's not just oil, it's metals, mining, the entire old economy has shortages in investment," 

• "The second theme, policy, sits at the center of the demand story. The big catalyst that the pandemic shifted is that policy after 2008-9 was directed at market stability: whether it was OPEC, the [US Federal Reserve,] the Chinese five-year plan, everything was around financial stability. Now, all the policy is around social need, and social need creates a redistribution of wealth towards lower-income, income-constrained households that consume a lot more... Demand is relatively strong across the board."

• "We call it revving commodity demand -- redistributional policies, environmental policies... and then there's the versatility in supply chains" in the form of stockpiling of commodities by countries such as China, 
  

• "It's the same three legs everywhere -- redistribution, Green, and then something to deal with the resilience of supply chains -- all [governments] are focused on that, whether it's the US, Europe or China," he said, arguing the policy side of the new cycle would be kick-started by a potential $500 million stimulus likely to be approved by the US Congress in the coming days

• On the topic of energy transition, Currie played down some of the more optimistic forecasts by his fellow panelists on the pace of progress in battery technology, and the rise of electric vehicles, highlighting among other factors limitations in lithium availability.

• "Right now Tesla and Apple consume 50% of the world's lithium market. These metals markets cannot accommodate scaling up these battery technologies at the rates that are potentially anticipated here," Currie said, going on to voice skepticism about the pace of improvement in battery technology.

Absolutely fascinating. The other day I mentioned that Toyota has/had stopped EV production in China because Apple had sucked up every available semiconductor.  I guess we can add lithium to that list: semiconductor shortages and lithium shortages.

If one is interested in reading more about this "long-lasting bull market in commodities" thesis, google:

• pandemic a structural catalyst to a longer-lasting bull market