There Was Still Little Movement at the Beginning of Autumn
Compared to the previous month, there has been little to no change. The pound has continued its downward trend, while the Swiss franc has strengthened somewhat in recent days. Overall, the situation on the currency markets is almost uncomfortably calm. There are also no facts to suggest any imminent change.
This also has its positive side. We can consider the valuation in the context of its longer history.
Notably, the CAD and the AUD continue to perform poorly against both the euro and the USD.
If interest rate differentials were relevant, the Australian dollar (AUD), which has a relatively higher interest rate, would have been stronger than the Canadian dollar (CAD) for some time. However, this has only gradually become the case. Australia also looks much more promising in terms of other trade- and current account-related fundamentals.
Are There Likely to Be Shortages of Commodities?
China dominates the development of raw materials, especially critical industrial metals such as silver and copper. Australia and the US have now signed an agreement to boost joint exploration and processing of rare earths. Australia is a country rich in raw materials and is now being called upon to produce rare earths. If bottlenecks occur, particularly in copper and silver, Western countries will be at a disadvantage. Australia and Canada, which are under severe pressure today, could distinguish themselves in the coming years and benefit from rising raw material prices.
Looking at the respective currencies’ charts, it’s clear that both the Canadian dollar (CAD) and the Australian dollar (AUD) are close to historic lows. This may continue for some time. However, pressure to invest in order to avoid being left behind in the geopolitical conflict will ensure that the global demand for materials significantly exceeds current mining capacity. This is a consequence of the commodity price recession that began in 2012 and placed a heavy burden on mining companies, particularly in 2013 and 2014, accelerating the reduction of their balance sheets. From the middle of the last decade, pressure also began to mount as a result of ESG regulations, placing an additional burden on the mining industry.
This all led to the closure of unprofitable mines, reduced exploration and a de facto standstill in the development of new mines. This process lasted almost ten years. That is a long time, and now that demand is rising sharply, it is being met with an ever-dwindling supply, as many mines are ageing and becoming less productive. Around five years ago, mining companies had finished shrinking their balance sheets and improving profitability, which had become a major focus for managers after ten years of wastefulness. This resulted in continued weak investment. Two years ago, when asked why they were not building new mines, Glencore responded that, given the risks associated with such projects in mining countries, the prices of raw materials (primarily copper at that time) were still significantly too low. Since then, the price of copper has risen by 20%. Whether this will be enough to encourage mine managers to increase production remains to be seen, but either way, it will take 20 to 30 years at the earliest to have an effect. This is how long it takes to explore mineral resources, plan a mine, obtain the necessary permits, build the mine and transport the products. We are definitely experiencing problems with the pricing and availability of materials here.
