Geopolitical unrest to cause volatility for commodities – RMB

With geopolitical instability persisting globally, especially in the form of…

With geopolitical instability persisting globally, especially in the form of conflict between Russia and Ukraine and in the Middle East, commodities are set for a volatile year, and the risk of this has not been priced in, RMB Resources Sector Solutions co-head Julian Grieve has warned.

“There is going to be more divergence in price movements within the commodity complex than we’ve seen in the past,” he says.

He expects gold to remain firm on the back of safe-haven demand in the risky geopolitical environment.

“Historically, if interest rates are rising this puts pressure on gold prices because the opportunity cost of carrying gold is higher. But this relationship seems to have broken down recently: interest rates have risen and yet people are still buying gold. It’s seen as a safe-haven hedge against uncertainty,” he explains.

Grieve points out that uranium prices have also been rising and are expected to continue to build as people are ‘unemotionally’ more accepting that nuclear is part of the energy solution.

“You can’t control whether the wind blows and when the sun shines, whereas a nuclear reactor is quite a lot easier to keep running all the time. On a carbon intensity basis, it is one of the lowest-intensity sources of power,” he asserts.  

When it comes to oil prices, a major determinant in South Africa is the inflation rate, Grieve posits, saying there is a greater risk for higher prices.

“Rising conflict in the Middle East could quite easily escalate and spill over and materially impact on the oil price,” he emphasises.  

Grieve informs that another facet of geopolitical turbulence is that State companies from the Middle East are investing in commodities in Africa for the first time and becoming a “real force”.

“Fairly risk-averse investors . . . [are] now putting significant capital at risk in African countries. We’ve seen Abu Dhabi coming into Zambia, and I think there’s going to be more to come,” he predicts.

Grieve posits that there is something akin to a “trade war” taking place in securing access to the critical minerals of lithium, copper and cobalt between the East and West.

“The Middle East is playing the role of a non-aligned independent party in the middle. They’re now buying assets outright, also looking to trade the underlying commodities and secure offtakes of these materials.

“It’s an interesting, changing dynamic – you’ve got the Western powers saying to African companies that they will support their production of copper, lithium, whatever it may be, provided that the commodities flow to Western-aligned interests.

“And then you have the Chinese buying assets outright and now we have the Middle East joining the melee, trying to wean their own economies off oil. They see critical minerals and energy transition as a core part of their ambitions,” Grieve outlines.

“There’s a lot of capital chasing assets in Africa right now and that can only be good news for the continent, but it’s a trend to watch closely as geopolitical interests can change quickly and 2024 is the year of the election so we could be up for a few surprises,” he adds.

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