The client, a large South American miner, after some very good financial years was looking to better understand investment opportunities in commodities outside their core array of options.
They still wanted to leverage from their main capabilities – mining related – but diversifying away from their core commodities. For this they wanted to better understand which are going to be the commodities of the future, in other words, where will there be the greatest returns of their investment.
Our recommendation
We proposed to analyse this by understanding which economic megatrends we are currently witnessing and will rule global development over the coming decades. For this purpose, we analysed:
- Urbanisation
- Material efficiency
- Energy mix and storage
Under the lens of these economic megatrends we screened a set of ten commodities: Steel, iron ore, thermal coal, copper, vanadium, lead, nickel, lithium, cobalt, and manganese.
Methodology
To understand the effects of these megatrends on the set of commodities CRU tapped into its Analysis teams, Economics team and network. The main question we had to answer was which of these are going to be the commodities of the future.
For an easier understanding, we divided the commodities into industrial sector and technology metals. It is good to note that several of these commodities correspond to both categories, which allowed us to better isolate the effect of the economic megatrends. For example, Nickel is used both in stainless steel applications, but is also used in batteries manufacturing – corresponding to our industrial and technology sectors definition respectively. The same situation is repeated in cobalt, vanadium and manganese. But understanding the difference of the demand growth drivers can help differentiating the products – as battery metals have much higher purity restrictions than industrial uses. This allowed our client to understand where niche opportunities would appear.
To tackle this, we firstly we outlined our understanding of the long-term development of these three economic megatrends, alongside with our long term view of overall economic development throughout the coming half a century. Secondly, we outlined the impact of these trends over the industrial sector and the technology metals sectors. Finally, we contrasted this with the company’s expertise – mining industry, language, cultural affinity, ease of business in the districts with good available deposits amongst others.
Outcome
The outcome of our research and analysis was presented to the client’s senior management in a workshop, where we helped them develop their own views on which of the commodities are good investment opportunities. We did so by contrasting our outlook and views of the commodities and the client’s expertise and capabilities. This helped the senior management team to continue developing their diversification strategy.
