Gallium Price ($US/KG)
10 June 2024 : Price $811.20
1 January 2024: Price $755.80
This week we highlight a great thematic piece by Goldman Sachs, published earlier this month. It makes the case for a positive view of commodities and the key trends driving them. It reminds us that independent of the daily chatter around interest rates, inflation, and debt levels that GLOBAL ECONOMIC GROWTH WILL BE FAR MORE ENERGY INTENSIVE OVER THE NEXT DECADE THAN IN THE PREVIOUS DECADE.
Goldman neatly break down the 5 key trends into Disinvestment, Decarbonization, De-risking, Data Centers and Defense spending. For the keen-eyed market participants most of these trends have been underway for several years already but only now have underlying commodity markets tightened enough to be reflected in commodity prices.
Below we include the very succinct article by Stephane Renevier at finimize. While gallium is not specifically mentioned we see 4 of the 5 trends supporting gallium over the next 10 years.
The Case For Commodities, In Two Minutes
Commodities have been on the rise, and likely will be for a while. Goldman Sachs sees the rally being driven by five key trends – which they neatly refer to as the “Five Ds”. Let’s take a look.
1 – Disinvestment
Years of weak returns, rising costs from environmental pressures, uncertain long-term demand, and a shift to shorter-term projects have slammed the brakes on investments in commodity production. This pullback has pinched supply, particularly in fields that can’t turn on a dime, like copper and aluminum mining, and oil refining and transportation
2 – Decarbonization and climate change
Goldman analysts estimate that the big decarbonization goal – hitting net zero by 2050 – will require a yearly green infrastructure investment of about 2% of global economic output. And that will include ramping up the production of electric vehicles, which of course will supercharge demand for the metals they use in abundance. At the same time, extreme weather patterns caused by climate change are likely to push up agricultural prices by disrupting supply.
3 – De-risking (or hedging)
Global disruption has been the planet’s middle name lately. So it’s no wonder policymakers, companies, and investors increasingly want to shield their supply chains and portfolios from geopolitical risks. This protective shift is already boosting demand for strategic commodities like gold. The movement to bolster strategic reserves of commodities such as crude oil and critical minerals, along with a stronger emphasis on supply chain security, is also driving demand across various industries, from tech to green initiatives to manufacturing.
4 – Data centers and AI
The AI boom could pump up commodity prices in three ways. First, the surging demand for data centers is cranking up the need for electrical power, which may spark a rise in the use of natural gas and essential metals like copper and uranium. Second, as the economy grows and incomes rise, overall commodity demand may get a lift. Third, productivity improvements outside the sector could mean less capital available for commodity investments, which could tighten supplies. But there’s a caveat here: AI could also lower commodity prices by improving efficiency within the sector.
5 – Defense spending
Global military spending soared in 2023, equalling 2.3% of the total global economy. In the US, defense spending flew past expectations, jumping 9% from the year before, well more than the forecasted 2%. With ongoing geopolitical uncertainties and the West’s commitment to spend more on defense, that number could climb even higher. Key commodities used in the defense sector include distillate fuels, copper, aluminum, steel, silver, uranium, and various strategic minerals.
Source: https://finimize.com/content/the-case-for-commodities-in-two-minutes