Global Growth Gains Spur Resources in Q2

Quarterly insights from Global Resources Portfolio Manager Shawn Reynolds, featuring his unique views on natural resources and commodities.

Broadly speaking, commodities trended higher on the quarter, with gains led by metals and energy. The environment for commodities was constructive, highlighted by modest, though encouraging, signs of global growth and perceived market tightness based on underlying supply and demand fundamentals. Apart from sectors mentioned above, resource equities mostly underperformed relative to their commodity counterparts.

Metals Headline Commodity Price Gains

• Gold & Precious Metals – Gold reached new all-time highs of $2,450/oz (intraday) in May. Continued central bank buying and strong physical demand buoyed prices. Meanwhile, gold miners’ shares were supported by higher prices and confirmation of controlled cost inflation.
• Base & Industrial Metals – Supply concerns, spurred speculative buying of copper in the first and second quarters of 2024. By late-May, copper reached all-time highs of $11,104/mt (intraday). Headlines of a potential deal between two large producers also attracted further attention to the copper space.
• Oil & Gas – Oil prices eased as concerns over a broader, regional escalation of war in the Middle East subsided. Weaker-than-anticipated gasoline and diesel demand, paired with higher reported inventory levels, also dragged. Meanwhile, natural gas prices rallied on increased energy demands (for cooling) in Asia and ongoing Russian supply threats. U.S. Exploration and Production (E&P) and oilfield service markets also continued to experience consolidation.
• Renewables & Alternatives – The sell-off in renewables slowed in the second quarter, amid prospects of a potential start to a rate cutting cycle in late-2024. Near-record installations of U.S. solar capacity during the first quarter (mostly utility-scale builds) also pointed to signs of strength. However, challenges remain for the industry, based on a lack of available labor, interconnection delays and trade uncertainty. The announced bankruptcy of a major customer for a solar inverter manufacturer and its subsequent issuance of a large convertible senior note also raised alarms around the current financial health of major players in the industry.
• Agriculture – Wheat prices surged through May on reported unfavorable crop conditions in the Black Sea region. Tight cattle supply and a rotation into poultry aided higher chicken prices during the quarter. Despite higher natural gas prices, fertilizer supply remained ample with Northern seasonal demand abating. Threat of oversupplied fertilizer markets persist with the potential for China to restart phosphate exports.

Constructive Outlook Remains in Place

We remain constructive on the outlook for commodities and resource equities heading into the second half of 2024. For now, inflation remains relatively persistent, and the likelihood of lower rates would be a net positive for commodities and emerging markets. Likewise, geopolitical risks seem likely to remain elevated just given the contentious, polarized nature of elections, globally, and a seemingly-narrow pathway for speedy resolution of military conflicts in Ukraine and the Middle East.

Fundamentally, we are seeing added support from evolving secular demand and supply dynamics. This includes structural demand support from de-globalization themes (such as re- or on-shoring or trade protectionism), increased power generation (due to the advent of artificial intelligence, data centers and additional grid buildout) and the on-going resources transition.

There are also several restraints on the supply side. Most notably, these include weak investment (due to reduced capital expenditures, sector-wide), increased resource expropriation, and supply chain disruptions.

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