Charlotte de Kerpoisson:

Hello. Welcome to the new age of scarcity. This is the title of one of our mid-year investment themes that we published in June. It’s all about the scarcity of commodities. And this is our topic today.  

The US-Iran conflict reemphasised the importance of securing the supply of critical minerals & energy. Restrictions of maritime traffic through the Strait of Hormuz, a critical waterway for global trade, resulted in shortages and higher prices for many raw materials, including energy, fertilisers, sulphur, helium and strategic industrial metals. Since publishing this investment theme, we’ve seen a partial reopening of the Strait of Hormuz in principle, with traffic resuming in the short term but remaining heavily restricted and far below normal levels. Even if US-Iran relations resolve, one thing is certain: supply shortfalls will persist for several months as production slowly returns to pre-conflict levels. Welcome to this podcast by BNP Paribas Wealth Management. I’m Charlotte de Kerpoisson.   To walk us through this hot topic, I’m joined by Edmund Shing, Global Chief Investment Officer.  Hello Edmund. 

Edmund Shing:

Hello Charlotte 

Charlotte de Kerpoisson:

Edmund, you believe that investors should not ignore commodities. But it appears that most investors are still underexposed to this geopolitically sensitive asset class? Can you explain?  

Edmund Shing:

Yes, basically, for a long period, commodities were actually not a good asset class for most investors. Really, from about 2010 until 2020, so for about 10 years, the best thing you could have done as an investor was ignore commodities as an asset class and just stay invested in other asset classes such as stocks, bonds, property, and so on.  

However, since 2020, which really was the, I would say, the aftermath of the COVID pandemic, since then commodities have roared back. And this is something we know about the commodities asset class through time that there are periods where they do relatively little, or it's best to ignore them, but then there are periods when commodities trend upwards very strongly and can generate very strong performance. So it comes in waves, and we're in, I think, still in the middle of a commodity supercycle right now, so one of those positive waves.  

Charlotte de Kerpoisson:

What’s interesting about this commodities theme is that we’re seeing an acceleration in the scarcity of precious metals, strategic metals, energies and so on.   Since the COVID pandemic lows of early 2020, the average commodity has almost tripled in price on the back of a new supercycle, triggered by several factors or significant events. Firstly, the post-COVID lockdown “revenge consumption”; secondly, Russia’s invasion of Ukraine in 2022; thirdly, a new wave of broad US import tariffs in April 2025; and more recently the closure of the Strait of Hormuz during the US-Israel-Iran conflict.  We saw a sort of boomerang effect of crude oil prices rising from 70 dollars per barrel to nearly 120 dollars in May before crashing down to 70 dollars in June and early July. And then the price even exceeded 100 dollars towards the end of July. So huge volatility.   So Edmund, the question is: are we going to see the commodity supercycle continue (in other words, surging energy and metal prices) in the future? And if so, for how long?   

Edmund Shing:

Well, this depends on several factors. I think my answer would be yes. What factors does this depend on? Firstly, global economic growth. Clearly, the economy needs to continue to show positive growth because, again, ultimately, demand for commodities comes from global economic growth. So, if the global economy is growing, demand for the basic materials commodities tends to grow as well.  

But I think there are several reasons to expect that to continue. Firstly, the global financial environment remains pretty benign. So even though interest rates have gone up from zero interest rate levels pre two thousand and twenty, we're still at relatively moderate levels of interest rates today. And I would say the environment in terms of financial conditions remains pretty positive for stocks, but also for commodities and for growth. Secondly, on top of that, we have geopolitical considerations. We are seeing commodities and the supply of commodities used more and more as a geopolitical almost weapon by countries that supply the world with commodities. One obvious example of this has been rare earth metals, which is a market that China dominates with ninety percent of refining and supply, and they have started to restrict the access to these rare earth metals, for instance, for the US.  

So there are geopolitical considerations which are forcing regions such as North America, such as Europe, and countries such as Japan to reconsider how they get access to different types of commodities, be it, as you mentioned, industrial metals, be it rare earth metals, be it energy, in a world where we could see interruptions of supply of these commodities more and more frequently, and that really is where we are. This can be for a number of reasons. It could be, as we saw with the COVID pandemic, we can see disruption of supply chains due to natural reasons or for geopolitical human reasons. You know, China restricting access to rare earth metals for the US, for instance. Iran restricting access to oil and gas for the oil importing regions such as Europe and Asia, and that continues.  

I think this environment of heightened geopolitical tensions is going to continue. And as such, commodities will continue to benefit from that environment, and we remain, as I said, in an environment not only where demand continues to grow thanks to global growth, but where new supply remains limited. Why? Because historically, we have in the last maybe ten years at least underinvested in new productive capacity in terms of new mines, new oil wells. This has generally been the case over the last ten years, and now we are suffering from this lack of investment in the lack of new supply of these key materials.  

Charlotte de Kerpoisson:

The Iran-U.S. conflict has highlighted the need for energy-importing regions such as Europe and Asia to invest heavily to become more self-sufficient in energy and to secure greater sources of oil and natural gas from outside the Gulf. So, Edmund, how are they going about this?  

Edmund Shing:

Well, with great difficulty. I think one obvious area is to source oil and gas in the near term from regions other than the Gulf. So, clearly, North America, Canada, U.S., even of course countries such as Mexico and Brazil. So that's clearly being done more and more. Secondly, diversifying your energy sources. So, for instance, getting off natural gas, for instance, as a source of electricity production wherever possible, and instead relying over time more on alternative generation of electricity via, for instance, nuclear or renewable sources of energy. That clearly is something that is of very high priority, both in Asia, in China, for instance, but in Japan as well. But equally, in Europe, where we see a nuclear renaissance in progress, where we see renewable energy investment continuing in an effort to reinforce energy security. But there will be a lot more investment that is needed on these fronts. But ultimately, all of this will take time. In the short term, it's quite difficult to get off our addiction to fossil fuels in particular. We can perhaps reduce our reliance on them gradually, but we will not be able to substitute them immediately.  

Charlotte de Kerpoisson:

We are seeing an unprecedented scarcity of commodities on the one hand, and unprecedented demand for energy & infrastructure that will outpace supply growth, on the other.   Edmund, what are your reasons for investing in this theme. And what are your top recommendations? 

Edmund Shing:

Well, exactly that. Structurally, demand will continue to outpace supply of commodities, and this can be for strategic metals, whether it be rare earth metals, whether it be for industrial metals such as copper, aluminium, and tin. And remember, copper and tin are used in all manner of electronics. Copper is also used not only in technology but in defence, and these are clearly areas of growth. Technology clearly, you're seeing huge investment in AI in AI-related data centres at the moment. This is ultimately going to require a lot more, for instance, copper for the wiring as much as for anything else. And also tin because tin is used as solder in everything electronic, including circuit boards. So wherever you have silicon chips, you need tin as solder.  

So clearly, the greater the consumption in the installation of data centres, the greater demand for copper and aluminium and tin at a time when, again, there have been no new mines. There have been no new mines for copper or for tin in the last few years that have been established. And if anything, we continue to see interruptions of supply in terms of huge copper mines, for instance, in the Grasberg mine in Indonesia or even in Chile, which is also a country which is very big global producer of copper. We have seen interruptions of the supply, and that just underlines how critical access to these materials is. And as you pointed out before that has been reflected in the steadily rising prices for these commodities. Now, as you said for energy, it's been bumpier. You know, oil and gas prices go up, they go down, depending on whether the Strait of Hormuz is open or closed or partially open, and that probably that volatility is very likely to continue.  

But if we talk about other materials such as the industrial metals, that I think will remain in a pretty strong upwards trend because of the demand growth because of the lack of supply growth. And we are still not at a price for copper or for aluminium or tin, which will I think spur new investment in new mines. And remember, new mine investments are very big projects because bringing a new mine from conception to production takes at least ten years.  So again, even in the best of cases, when you stop when you make the decision to stop investing, you are still going to have to wait at least typically ten years to see the first production from any mine. So I think in the short term that bottleneck is there. It cannot change in the short term, so there cannot be the supply response in the short term that we would hope for, simply because the supply response needs long term investment first.  

Charlotte de Kerpoisson:

And now on the flip side, can you expose the risks linked to investing in the commodities theme? 

Edmund Shing:

Well, the most obvious risk is that of economic recession, because clearly, economic recession, if the economies shrink, demand goes down. If demand goes down, then prices will follow. You know that has always been the history that commodities as a sector tends to be pretty economically sensitive, and so when you have a contraction in the world economy, commodity prices tend to suffer. So that really is the principal risk. The question then is: Do we see recession on the horizon? Not really. We still see pretty steady growth in the US, of course, linked to AI investment in Europe, in Asia. So actually, there is no reason to expect imminent recession, and therefore, we don't see that this risk—it's always there—but we don't see it materializing any time soon for the commodity sector.  

Charlotte de Kerpoisson:

Thank you Edmund. And thank you to our audience for listening to this podcast.  Please like, share and subscribe to our weekly podcasts. Today we discussed one of our investment themes that we published in June. For more information about the other 3, and for all our investment strategy research, please visit our website.  Goodbye.