A commodity trading strategy for decarbonization. Plus, why more bond market carnage lies ahead

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Copper and aluminum miners are arguably the biggest commodity-related beneficiaries of ongoing decarbonization efforts but Morgan Stanley sees the short-term prospects as mixed for both sectors. In the mid-term, however, large deficits and much higher commodity prices are likely as demand outpaces supply. This timing allows investors to slowly build positions at lower prices in the coming quarters, and then profiting in the middle of the decade as commodity prices climb.

Ms. Sergeant estimates that by 2030, energy transition markets will account for 29 per cent of copper demand, up from 20 per cent, and 22 per cent of aluminum demand, up from 15 per cent. The strategist is confident in her demand growth projections at 2.1 per cent annually for copper and 2.2 per cent for aluminum.

The projected demand growth for both metals is actually slower than what was seen over the past decade amid ravenous demand from the Chinese. Supply deficits will, of course, support commodity prices and allow many miners to generate outsized profit growth, particularly those few able to significantly increase production. The strategist warns, however, that the deficits will only become apparent in the middle of the decade and the short-term outlook is less constructive.

 

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