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Find Clarity Amid Chaotic Commodities: Webinar Highlights

April 11, 2022

Read Time 6 MIN

Amid ongoing volatility in the commodity space, we examine the themes and companies most likely to benefit in the new commodity world order.

On a recent webinar, senior investment professionals from across our global resources team shared their views on commodity volatility and discussed key themes to help investors navigate the turbulent market backdrop. For those seeking to invest in commodities, there are three key takeaways from the webinar:

  1. A super-cycle begins: Current geopolitical risks have massively amplified the underlying fundamental imbalances in the commodities market.
  2. Global supply chains will change: This disruption to global commodities markets has reemphasized the need to address key themes of inflation, energy transition and supply securitization.
  3. New winners will emerge: Innovative and sustainable companies are poised to meet immediate challenges and benefit from the long-term needs of the new global market.

The following summary features highlights from the conversation, including an overview of the specific companies that are likely to benefit in the new commodity world order. The full webinar replay can be viewed here: Find Clarity Amid Chaotic Commodities.

High inflation is being caused by forces that were in place long before Russia’s invasion of Ukraine. Prices for everyday goods began to spike in 2020 due to massive stimulus measures, recovering demand and looming supply constraints (00:04:23).

Even if the impact of Russia’s invasion of Ukraine starts to wane, we expect commodity prices to remain at record highs given the fundamental backdrop of the market. As an example, global energy inventories remain low as energy producers significantly cut their spending over the past several years, resulting in lower supply. At the same time, demand for energy continues to rebound and is closer to pre-pandemic levels. The resulting supply and demand imbalance is fertile ground for a sustained period of higher prices (00:13:48).

Europe Accelerates Its Push to Reduce Dependency on Russian Energy Supply

While the fundamental commodity backdrop was in place long before the invasion of Ukraine, Russia’s recent actions will have lasting effects. Most notably, Europe will accelerate efforts to diversify its energy imports and wean itself from Russian supply (00:05:56).

Europe is among the largest consumers of Russian-supplied oil and gas. The European community was already on a path to diversify its sources of energy, a plan that it has accelerated since the conflict in Ukraine. Europe’s plan has three main components:

  1. Diversification strategy: Ensure gas storage levels of 90% by October 1, 2022; add new liquefied natural gas (LNG) and pipelines; scale renewable gas production 55 billion cubic meters (bcm) by 2030 (including biomethane and hydrogen).
  2. Electrification strategy: Increase wind and solar deployment by 20%; encourage behavioral changes in energy consumption and use of heat pumps.
  3. Fuel switching options: An additional 120 terawatt-hours in coal-fired generation to cut gas demand by 22 bcm in one year; return nuclear reactors under maintenance in 2022 and temporarily delay the shutdown of any major reactors.

New Energy Winners Emerge

The shift in commodity market supply and demand dynamics will pave the way for new winners to emerge. In Europe, Equinor (EQNR) is a reliable E.U. gas supplier that is well positioned to deliver more gas to Europe due to the increased production efficiency at the company’s existing facilities. Equinor is also a pioneer in offshore wind energy, leaving the company well positioned to help Europe deliver on its electrification strategy (00:09:45).

Equinor to the Rescue in Europe?

Equinor to the Rescue in Europe?

Source: Bloomberg New Energy Finance (BNEF), VanEck. Data as of March 2022. The reader should not assume that an investment in the securities identified was profitable. Past performance is not indicative of future results. Not a recommendation to buy or sell a security.

Outside of Europe, the U.S. energy industry is also positioned to benefit from the changes in the global market. The E.U. is likely to tap into the U.S.’ growing exports of LNG as part of its plan to diversify its gas supply. In addition, the U.S. has become a net exporter of crude oil and petroleum products in the past several years, establishing itself as one of the top suppliers of traditional energy (00:14:48).

Among U.S. names, we believe Chart Industries is particularly well positioned. Chart Industries is a leading global manufacturer of engineered equipment that is used in every phase of the liquid gas supply chain, including upfront engineering, service and repair (00:17:55).

Shift Towards Renewable Energy Creates New Supply Concerns

In addition to changes in the global supply chain for traditional energy sources, countries around the world are taking steps that will accelerate the adoption of renewables (00:20:03).

With a greater emphasis on responsible sourcing of minerals, global concerns are now mounting over the geographic concentration of minerals extraction and processing. Over time, we expect governments will incentivize the development of onshore supply (00:25:19).

It’s Lonely at the Top: Minerals Supply Chain is Heavily Concentrated

It's Lonely at the Top: Minerals Supply Chain is Heavily Concentrated

Source: IEA. Data reflects 2019 extraction and processing figures as presented in IEA’s 2021 report The Role of Critical Minerals in Clean Energy Transitions.

In the meantime, key input minerals for clean energy technologies are already seeing dramatic price increases. We believe Vale, primarily known as an iron ore company, is well positioned to take advantage of this surge in prices. In addition to iron ore, Vale is also one of the largest producers of nickel (00:31:41).

Metal Prices Surge: 3-Year Cumulative Price Change

Metal Prices Surge: 3-Year Cumulative Price Change

Source: Bloomberg. Data as of February 2022. Past performance is not indicative of future results.

Don’t Forget About Food Price Inflation

Over the past few years, food prices began to soar due to poor weather and the pandemic-driven supply chain disruption. The conflict in Ukraine has exacerbated the situation and is contributing to even higher prices for agricultural commodities (00:33:58).

In the agricultural space, we believe Nutrien will emerge as a winner. Nutrien is poised to produce nearly 1/4 of total global potash volumes in 2022 as it ramps up production to meet the shortfall from Russia and Belarus (00:40:09).

How to Hedge Against Inflation

With the recent surge in prices, many investors have scrambled to find ways to protect their portfolios from inflation. Historically, commodity-equity investments have been an excellent way to hedge against inflation. Investors last faced inflation risk in the early-to-mid 2000s with the most notable bout of inflation occurring in the 1970s. Historically, commodities have acted as a hedge against inflation, outperforming U.S. stocks and bonds. Even in periods of modest inflation (2-6%) commodities have outperformed U.S. stocks.

VanEck Inflation Sensitive Solutions

VanEck has a history of inflation sensitive investing in natural resources and commodities for over 50 years, offering investors actively and passively managed strategies, from physical commodities to natural resource equities. We offer specialized exposure to individual sectors and diversified solutions with broad exposure across sectors and industries.

Name Symbol Agriculture &
Agri-Food
Technology
Gold/
Precious
Metals
Base/
Industrial
Metals
Strategic/
Rare Earth
Metals
Renewable/
Alternative
Energy
Traditional
Energy
(Oil & Gas)
Energy
MLPs
Infra-
structure
REITs
Global Resources Fund GHAAX/ GHAIX      
CM Commodity Index Fund CMCAX/ COMIX          
International Investors Gold Fund INIVX/ INIIX                
Oil Refiners ETF CRAK                
Energy Income ETF EINC              
Gold Miners ETF GDX                
Junior Gold Miners ETF GDXJ                
Green Metals ETF GMET              
Natural Resources ETF HAP      
Agribusiness ETF MOO                
Uranium+Nuclear Energy ETF NLR              
Oil Services ETF OIH                
VanEck Merk Gold Trust OUNZ                
Inflation Allocation ETF RAAX
Rare Earth/Strategic Metals ETF REMX                
Steel ETF SLX                
Low Carbon Energy ETF SMOG                
Future of Food ETF YUMY                

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