Geopolitics Take Center Stage in Resources
October 21, 2024
Read Time 3 MIN
Quarterly insights from Global Resources Portfolio Manager Shawn Reynolds, featuring his unique views on natural resources and commodities.
Volatility Reigns
Commodity prices were volatile during the quarter. Bloomberg Commodity Index1 dropped -7.6% from end-June to early September before eventually rallying back to end the quarter down only -0.64%. From a macro perspective, the biggest drivers of commodity prices included a moderating global growth outlook, China’s historic stimulus measures, interest rate cuts in the U.S. as well as escalating geopolitical tensions.
Most notable of these factors was China’s announced stimulus measures. All told, the measures are expected to free up some 1 trillion yuan in capital, reduce interest expenses for homebuyers by approximately 150 billion yuan annually, encourage further borrowing and boost overall market liquidity.
As the largest consumer of raw materials globally, China’s comments impacted commodity prices almost immediately. In the days following the announcement, metals such as iron ore, zinc, aluminum and copper were up approximately 12%, 7%, 6% and 5.5%, respectively. The boost was also felt by the producers themselves, with many of the largest miners up double digits over the same period.
On the flip side, oil prices continued to ease as the outlook for growth slowed more broadly and supply remained relatively robust. The majority of oil and gas producers – including both integrateds and independent producers – experienced modest losses on the quarter.
Geopolitics Take Center Stage in Resources
Eyes on the Middle East
There are multiple factors impacting the outlook for commodities and resource equities for the remainder of the year. First and foremost is China and how global markets continue to respond to the country’s announced stimulus measures. Secondly is geopolitics – including the ongoing escalation of tensions in the Middle East and the outcome of U.S. elections in November. Finally, are lower interest rates in the U.S. and how that environment may benefit the renewables space.
We continue to keep a close eye on the Middle East just given the potential for all-out war in such an oil-rich region. While it is estimated that +OPEC has upwards of 6 million barrels per day of spare productive capacity available to come to market on short notice, much of that supply would still likely need to come through the region’s Strait of Hormuz – a passage already fraught with risk.
To address the heightened geopolitical risk in the Middle East, it's useful to compare the situation to the natural gas and commodity price spikes experienced in Europe after Russia’s invasion of Ukraine. However, the potential disruption in the Middle East could be significantly larger, given oil's critical role in the global economy. A major conflict in this region could exacerbate already volatile energy markets, impacting supply chains far beyond just oil-producing countries, and further magnifying the global implications for commodities and resource equities. The sheer scale of oil’s influence makes any disruption potentially far more destabilizing globally.
Renewables, which have been negatively impacted by higher borrowing costs for the last several years, look to be one of the prime beneficiaries of a pivot to lower rates. Share prices of companies within the space have been rallying since expectations of interest rate cuts in the U.S. and that momentum may carry with further easing measures.
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Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this blog.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
1 Bloomberg Commodity Index is a broadly diversified index that tracks the commodity markets through commodity futures contracts and is made up of exchange traded futures on physical commodities, which are weighted to account for economic significance and market liquidity.
Hard assets investments are subject to risks associated with real estate, precious metals, natural resources and commodities and events related to these industries, foreign investments, illiquidity, credit, interest rate fluctuations, inflation, leverage, and non-diversification.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation
666 Third Avenue | New York, NY 10017
Important Disclosure
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this blog.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
1 Bloomberg Commodity Index is a broadly diversified index that tracks the commodity markets through commodity futures contracts and is made up of exchange traded futures on physical commodities, which are weighted to account for economic significance and market liquidity.
Hard assets investments are subject to risks associated with real estate, precious metals, natural resources and commodities and events related to these industries, foreign investments, illiquidity, credit, interest rate fluctuations, inflation, leverage, and non-diversification.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation
666 Third Avenue | New York, NY 10017