Commodities boom presents opportunities for investors

23rd July 2021 By: Tasneem Bulbulia - Creamer Media Reporter

The mining sector has emerged as a bright spot in the South African economy and investors are benefitting from this.  

Specialist index fund manager 1nvest executive Johann Erasmus tells Mining Weekly that the recent commodities boom is attributable to a combination of delays in the global supply chain and increased consumer demand as economies are moving out of various levels of Covid-19-related lockdown.

“There is a level of inflation fears that adds to the short-term demand spikes driving the overall increased consumer demand,” he notes.

He informs that 1nvest has seen a prolonged reduction in palladium holdings and, in the short term, also a reduction in gold and rhodium holdings as investors took profits.

“With the lower prices, we have seen renewed interest in adding exposure again,” he says.

Erasmus explains that early investors have benefited from the larger part of the commodity price rally to date, with some commodities having doubled in price in a relatively short period.

“As the world moves through periods of turbulence, there will be periods of price pull-backs which provide entry opportunities,” he notes.

As vaccines are rolled out and economic recovery takes place in the developed world, demand for metals is expected to continue to rise and this looks unlikely to slow down anytime soon – unless another major shock hits the market.

Erasmus also cites longer-term trends such as the changing behaviours around energy consumption being set to drive demand for battery materials, copper and some of the platinum group metals (PGMs).

As they look to capitalise on opportunities, Erasmus says, mining companies are reducing their debt, keeping existing projects running for longer and considering new projects that were not previously considered viable.

“There will be periods of volatility and, within these periods, there will be an opportunity [for investors] to enter the market.

“Consideration is to be provided to the longer term trend of re-electrification, driven by the changing environmental, social and governance environment and how we generate and consume energy,” Erasmus comments.