Natural Resources Looking Like Gems

The recent drop in natural-resource prices and related stock values reflects a cyclical slowdown in the global economy—something AMG has anticipated for some time.

But the ebb should be temporary. The long-term outlook for natural resources is glittering. Shortages following the pandemic resulted largely because of underinvestment in new supply after the commodities busts of 2012 and 2014. And rising prices for commodities such as oil and copper since 2020 have also failed to spark investment in new supplies. That means natural-resource prices likely will remain high for some time.

A primary driver of natural-resource demand is geopolitical. Examples include the growing competition between the United States and China for metals necessary to build batteries essential to electric vehicle technology and Russia’s invasion of Ukraine disrupting grain exports from both countries, hindering global supplies.

At present, AMG anticipates an escalating demand for natural resources that will last for decades and require heavy investment in production. Emerging-market growth coupled with less arable farmland should mean higher agricultural prices. Global electrification and decarbonization efforts throughout the developed world should mean increased prices for metals, including copper, lithium, iron nickel, and cobalt.

While technology, particularly artificial intelligence, has grabbed the headlines recently, investors should consider allocations to natural resources, which are relatively cheap compared to what the world will demand of them over the next few decades.

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