Overnight, the latest US inflation data gave investors some confidence of a return to normalcy.
Year-on-year core prices have now risen 4.9% through to April — a result that was just below the forecast 5% from most analysts.
So, while inflation is certainly still persistent, at least it cooled a little faster than expected.
Getting back down to the Fed’s 2% target, however, still seems like a challenge. And even if forecasts for another rate hike in June plunged after today’s data, it remains to be seen if the Fed has done enough to finally beat inflation.
For investors like yourself, this is obviously still the big narrative to keep an eye on.
But it certainly isn’t the only one.
Anyone looking beyond the current macro concerns knows that there are even darker clouds brewing. Because while inflation and potential recessions are certainly important, long-term availability of key materials may be the real concern for the coming decades.
And it’s not just about the obscure metals most people have never heard of…
Europe’s base metal blowout
Back in March, the EU put forward some eye-opening legislation.
You see, like other nations — and particularly the US — it had a classification of ‘critical minerals’. A list that detailed a bunch of typically niche materials that are becoming harder and harder to source from reliable suppliers. In other words, metals that could be largely provided by nations other than China.
But in March, the EU did something unexpected by adding copper and nickel to this list. Because despite being relatively abundant base metals, it became clear to policymakers that demand is likely to outstrip supply.
As Bloomberg reported:
‘The new Critical Raw Materials Act — presented to lawmakers on Thursday [16 March] — could open the door to expedited permitting and financing of copper and nickel mining projects in the EU, as the bloc looks to boost domestic production and ease reliance on imports.
‘Copper, one of the largest industrial-metal markets, wasn’t included in the EU’s last list of critical raw materials published in 2020. Copper’s diverse uses in manufacturing, construction and industry mean it’s widely viewed as a bellwether for global economic activity, but surging usage in electric vehicles and renewables are fueling fears of deep shortages in years to come.’
In other words, Europe is worried that global supply won’t be able to keep up with demand. So, to get ahead of this shortfall, they’re trying to expedite local mining projects.
And you know what, they were right…
The latest data from the International Copper Study Group (ICSG) says there will be a 114,000-tonne shortfall of copper by the end of this year — an improvement over the 431,000-tonne deficit of last year at least, but nowhere close to the surplus that the ICSG had predicted back in October.
As Reuters bluntly concluded:
‘Usage, particularly in China, appears to be growing faster than previously forecast, while mine supply is yet again failing to live up to expectations.’
Copper is king
Of course, none of this comes as a surprise to our commodity expert, James Cooper.
He has been pointing the finger at Europe’s mining problems for a while now. As he put it himself back in mid-April:
‘Extracting resources from the ground is a dirty business in Europe.
‘For Europeans and their politicians, it’s very much…“not in my backyard thanks!”.
‘Political leaders have shunned new projects thanks to the industry’s poor public perception and often damaging effects on the landscape.
‘Instead, Europe has preferred to source the raw materials from out of sight places like Africa, Asia, or South America.’
That strategy now appears to be blowing up in their face. As both James and the EU policymakers are beginning to realise.
Here’s the thing though, this problem isn’t just limited to Europe…
A copper shortage would hit almost every major economy…and hard. Because as anyone familiar with the metal can tell you, it’s incredibly vital for a lot of modern industrialisation. Its conductive properties alone make it an imperative resource for many sectors.
The problem is, we’re all at risk of this copper shortage.
As James has been telling any investor who will listen, the world has just four days of this vital metal stockpiled at any given time. With demand rising and supply failing to catch up, it has all the makings of a classic commodity price explosion.
Which is why, as an investor, you need to be paying attention to this market.
Do yourself a favour and check out what James has to say, and find out why copper is king…
Regards,
Ryan Clarkson-Ledward,
Editor, Money Morning
