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Robert Minter, Abrdn
Robert Minter, Abrdn

Commodities demand soars

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China is open for business after an extended Covid lockdown and with that comes a renewed appetite for commodities.

Even before the Chinese government officially lifted the stringent restrictions, anticipatory rumours of imminent freedom saw the production of aluminium increase to 189kt/day in December, compared to 188.6kt a month earlier.

Meanwhile the price of copper reached a near a seven-month high in January, as continued optimism that China’s reopening will boost demand for the metal which is crucial to everything from cars to smartphones and home heating systems. 

But demand is not the only factor driving the surge in commodity prices. 

Robert Minter, director of ETF Investment Strategy at abrdn, says there is a significant supply problem across the commodities sector which is also influencing the markets.

“We had really heavy messaging of an impending recession, right so obviously, no one wanted commodities of any type. Inventories were really low; there were reports that the London Metal Exchange was at 25-year low inventories for the six major metals.”

He adds: “There has been limited investing and capex to develop new mines, and existing mines are under pressure.”

A case in point is Glencore’s Antapaccay copper mine in Peru where operations ground to a halt in January as protesters damaged a worker camp. The protests, which were prompted by longstanding grievances about high poverty levels and discrimination felt by many in Peru’s Andean and Amazonian regions, kept the mine closed for 11 days.

Prior to the incident, Antapaccay, accounts for 8 per cent of Peru’s total copper exports, was operating with just 38 per cent of its workforce following persistent protests in the nation.

Minter says the ESG concerns about commodities, while justified, make the sector more complex for investors.

“It’s a very complicated area. The problem is that the [ESG] analysis and planning has done a fantastic job of getting attention from the public and making them aware, but it has done a very poor job of actually providing for the [consumer’s] needs,” Minter says.

He adds: “A mine can be pretty devastating for the environment if it’s done incorrectly, so it’s right that it gets proper approvals, but you also can permit them into oblivion. There has to be a compromise.”

In September 2021 the asset manager launched its abrdn Bloomberg Industrial Metals Strategy K-1 Free ETF of which almost one-third is allocated to copper, while the rest is nickel, aluminium and zinc.

Minter says: “We liked that the index has a history back to 1990 so people can see what it looks like and how it reacts.”

Minter acknowledges criticisms of the index for its exclusion of cobalt, but he says abrdn would have no exposure to the mineral irrespectively due to serious concerns about child slavery and exploitation in the industry.

“We would never have cobalt exposure. It is the poster child for ESG issues and these have translated to financial risk,” Minter says.

In the three months to end of January the ETF has returned 26.17 per cent. 

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