Goldman's chief commodity strategist sits down to discuss mega trends

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• Over the weekend, Goldman's commodity chief Jeff Currie sat down with podcast host Grant Williams to discuss a number of key themes likely to effect commodity prices in the coming decades.
• (NYSEARCA:USO) (NYSEARCA:XLE) (HG1:COM) (NYSEARCA:COPX) (NYSEARCA:GSG) (NYSEARCA:TAN) (NYSEARCA:URA) (OTCPK:SRUUF) (NYSE:XOM) (NYSE:FCX) (NYSE:CCJ).
• Following a decade of government and central bank stimulus focused on high-income earners (quantitative easing), stimulus has shifted to support low income earners (direct payments, furlough benefits, rising minimum wage, low unemployment); as stimulus supports a broader sub-set of the population, it will create volumetric demand growth for commodities and a commodity bull market that will drive inflationary pressure, in Jeff's view.
• In Currie's view, following the 2008 mortgage crisis, credit was pulled from lower and middle income consumers and wages and unemployment were slow to rebound, leading to weak 'old economy' demand; this led to low returns in the commodity sectors, leading to underinvestment; in March 2020 the cycle flipped, demand for old economy goods boomed, the sector was caught short capital and labor, wages rose, the old economy hired, and the cycle became self-reinforcing, creating the foundation for a bull market in commodities.
• In a look back at 2021 calls, the Strategist noted a strange juxtaposition in capital flows across the commodity space - as oil prices hit $85/b while inflation hit 7%, the little capital that was invested in the sector packed up and left -- in his view, the last commodity super-cycle started in 2003, with capital entering the sector in 2005, and similarly Jeff thinks it will take time for generalist investors to come back to the space.
• Jeff highlights the current energy shortages, saying "there's an energy shortage everywhere in the world excluding east-of-Rockies in the US," as Mr. Currie thinks weather is the only thing standing between the status quo and a humanitarian crisis in Europe - in addition to risk of a humanitarian crisis, Mr. Currie's clients joke that the European economy is now dependent on whether or not the wind blows, a difficult position for any business leader or politician to sustain.
• Jeff indicates that the current energy transition is the first in human history where civilization is attempting to transition from a lower-waste, higher-density fuel (oil and gas) to a higher-waste, lower-density fuel (wind and solar); conversely, he notes that nuclear is the lowest-waste, highest-density fuel known to man, and that sustained high energy costs will drive popular opinion to shift in favor of nuclear -- Jeff expects the European taxonomy to include nuclear as sustainable, and thinks this will drive a wave of ESG capital into the sector.
• Jeff thinks it is more likely that China will join Europe in a global effort to reduce carbon - the Goldman strategist says American's will never pass a carbon tax or cap-and-trade program aimed at solving a global problem at the expense of American tax payers; Jeff goes on to say that a direct carbon tax would keep funds domestically, while the status quo ESG investment trend reduces capital investment in energy-intensive industries, driving up prices and sending consumer dollars (an "ESG tax") to places like Saudi Arabia and Russia.
• To make tangible progress on the energy transition or climate change, Jeff thinks we need to master either energy storage (batteries) or carbon capture; Jeff notes the scale of resources poured into the battery problem over the last decade, and the comparably few resources flowing into carbon capture and storage -- importantly, Jeff indicates "if somebody come up with a carbon capture technology that worked, every one of these investments in EVs and conservation is done."
• Copper is the new oil in Jeff's view, as it's conductive characteristics are necessary in almost every major facet of the energy transition.
• To close, Jeff comments that the world is attempting to run two parallel systems - we are running the old carbon-based economy, while trying to build a new low-carbon economy, and we are running both sub-optimally for now - the world needs to kick up investment in both at the same time, and in this decade we need additional capex of ~$16t, equivalent to China's 2000s total capex ("we need an extra China"); Jeff finishes in saying "energy transition will be the most expensive endeavor humans have ever embarked on" a view that meshes well with his call for commodity outperformance in the year ahead.

Comments

[RalfG]

@diewolfsschanze interesting.

[PT Larry]

Oil inventories together with gasoline and distillates draw again this week.

www.investing.com/...

[Steve__C]

@PT Larry Added together they make for a big number. Let's see what the 'morrow brings

[Steve__C]

@PT Larry BTW, did you see this? www.reuters.com/...

[PT Larry]

@Steve__C Thanks for the link. I wonder about the effect of lifting Iranian sanctions. After all, Iran is pumping and the oil is going somewhere. Best bet it’s going to China at a lower price to Iran.

[DividendInvestor2018]

great!

[Eurogolfer]

“Copper is the new oil…” Let that sink in for a while.

[Druncle Joe]

@Eurogolfer The process of mining copper might be slightly less CO2 intensive than fracking, but not much...

[Gary Jakacky]

@Druncle Joe Far less intensive than mining rare earths for envirowhackos.

[richjoy403]

@Gary Jakacky -- That the mining & processing copper is a very dirty business isn't the issue--and it's very unlikely that will change in the foreseeable future.

Copper may never be regarded as the new oil (which is likely a good thing), but it's a very high probability copper prices will rise because it's essential to all things both electrical and electronic... increasing demand and decreasing stockpiles in 2022.

Copper has long been known as "doctor copper", akin to having a phD in economics because its price has a reputation for predicting periods of economic growth and contraction.

[bet727]

The greatest threat to man, plants, and animals is global cooling not global warming. Earth has been thru many climate changes in it's billions of years. Cold cycles are always devastating to man, animals, and plant life, causing starvation and misery. There is no evidence that warm cycles cause this same damage. The last cold cycle from ~1350 AD to ~1830 AD shows global cooling in action. This current warm period follows that cold period and another cold period is in its' early beginnings. Today, we ignore history, and worship computer models. Anecdotal evidence of cooling, such as our Sun being in a grand solar minimum for two years, the Antarctic just had its' coldest winter of record, and the Sierras set a record for snowfall in late December. The Vikings established settlements on Greenland in the Medieval Warm period ~750 AD to 1350 AD. Today those settlements are under snow and ice caused by the mini ice age of 1350 to 1830 AD. This destroyed the Viking settlements. I write this as food for thought. No one is writing about climate history. All writings today are asking us to fear our current warm period ,when it should be celebrated as the Vikings did hundreds of years ago. By the way, for those who care, we are technically still in an ice age. I say: embrace the warmth and fear the cold. There is nothing to fear except fear mongers.

[richjoy403]

@bet727 -- This is to inform you're at least a couple decades behind the times... it's been "climate change" (not global warming) at least that long, and applies to hotter summers & colder winters, changes in ocean temps, impact upon crops, and other changes.

[Chaffey]

@bet727 Have a look at this chart Bet. It isn't that there have been hot and cold periods since time began....it is the sped with which the planet is heating up. www.visualcapitalist.com/...
Global warming is undeniable but I guess there is a segment of the population that just doesn't believe anything that doesn't suit their agenda.

[turbo_dog]

@bet727 Heating of the earth in general changes atmospheric and ocean currents. This can make some areas colder, because warming currents move away from the area, or wetter because humid air is moved to the area as well as hotter or dryer. So, what happened in the antarctic or sierras certainly has more to do with global warming than cooling. The solar minimum has next to no effect on the earth's climate. If it did, why would the earth's temperature have been the hottest in recorded history during the two years the solar intensity is at a minimum.

[Clauser1960]

I wonder how people can so easily forget that there is no scientific consensus on climate change.

[rpkBE]

@Clauser1960, but there is consensus.

[richjoy403]

@Clauser1960 -- There is broad 'climate change' consensus among climate scientists.

However, there are also a relative few outliers, mostly among persons of other disciplines (plus a number of non-scientists and right-wingnut deniers).

[Clauser1960]

@richjoy403 Wrong, many climatologists do not agree it at all. They dispute climate change in itself, and/or the relevance of human factors in causing it. There is NO SCIENTIFIC CONSENSUS, only an ideological or political claim (of...... scientific consensus).

[TheHarlequin]

If someone did invent an efficient method of carbon capture Elon Musk backed by a consortium of industrialists heavily invested in EV tech would buy the technology and make sure it never sees the light of day. Not such a glib comment when you think about it.

[turbo_dog]

@TheHarlequin They'd have to fight a broad consortium of industrialists heavily invested in fossil fuels for the rights to that technology. I'd love to see that auction. Better yet, I'd love to have the technology to sell.

[pat mccrotch]

Just more leftist gobbly gook. But it does make you think about just how much of the world's resources they have wasted with this green energy crap. It really has been devastating harmful.

[Clauser1960]

@pat mccrotch Exactly, here in Europe energy and heating bills are skyrocketing, but it looks like a lot of people still do not understand that is the DIRECT CONSEQUENCE of "green policies".......

[Steve__C]

@Clauser1960 That's one reason but it seems the main one was energy companies preferring the spot market to longterm contracts. It worked well for them for years until it didn't....

[Tao Jaxx]

So Goldman's chief commodity strategist tells us commodity prices will rise.
Surprise surprise.
I've seen that trick before: Goldman looking for bag holders.

[Tuco's Child]

@Tao Jaxx

I believe Goldman this one time because:

8 billion people on Earth and the Greenies still want their EVs and electronic gadgets and houses and gold rings and stuff no matter what

[Tao Jaxx]

@Tuco's Child Been long commodities 18 months now so I'm OK with the diagnostic.
I just don't like it when Goldman says they're on the same side of the trade I'm in lol.
Sounds like ringing the bell for me to jump out of that train.
Greenies don't do Gold rings by the way. Wooden rings maybe? More likely paper maché.

[PT Larry]

@Tao Jaxx The big positive for commodity prices is inflation, the infrastructure bill and the yet to be passed BBB.

[manfac]

He sees the problem , however the problem is bigger than the possible solutions at todays economy .

He should focus on infrastructure that is doable before tackling an insurmountable issue .

Jeff learn the process of solutions rather than socialization .

[LongTermActivist]

This guy is smarter than pretty much every SA reader yet every SA reader thinks they know it all.

[Mr. Gumbo]

@LongTermActivist sounds about right

[turbo_dog]

@LongTermActivist I won't claim that he isn't smart, but he could certainly clarify his language a bit.

[Henry Little]

Love the title....apparently, mega trends are too serious to discuss standing up!

[MWinMD]

"Jeff indicates that the current energy transition is the first in human history where civilization is attempting to transition from a lower-waste, lower-density fuel (oil and gas) to a higher-waste, higher-density fuel (wind and solar)"

What in the world does this NITWIT think that CO2 is? Oil and gas are the HIGHEST waste forms of energy on the planet. I'm defining waste as leftover biproducts that are toxic or harmful. I wonder how he defines it?

[turbo_dog]

@MWinMD i dont understand his definition of density either.

[frank paxman]

@MWinMD It's likely it was mis-written without a proofreader to catch the error. It happens.

[Gary Jakacky]

@MWinMD CO2 is toxic and harmful? Tell that to the plants.

[oilisgoingupsoon]

Agree with Curry...but Currie has not mentioned is how long it takes to build new infrastructure like nuclear plants, transmission lines, pipelines and offshore platforms. These long cycle investments imply a very long period of energy shortages and the only thing that speeds up the building of new infrastructure is VERY HIGH PRICES, to incentivize investment. VERY HIGH PRICES will be necessary to kill off demand and to allocate the energy to those willing to PAY. DEMAND will DROP because many cannot afford to pay, so they will suffer instead with cold homes and black outs. The Energy Transition will be TERRIBLE AND COSTLY for many...and they will rebel against the GREEN MOVEMENT

[Steve__C]

@oilisgoingupsoon You missed out the need for a stable national grid.

[katieliu76]

Currie hasn't had a good call in years. Didn't he say gold was going to 2k? And yet here we are....

[PhillySteaks]

@katieliu76 Gold hit $2k in 2020. It has been consolidating about 10% below the all-time high ever since.

[Michael Bryant]

"...nuclear is the lowest-waste, highest-density fuel known to man, and that sustained high energy costs will drive popular opinion to shift in favor of nuclear."
-- Long $UEC.

"Copper is the new oil in Jeff's view, as it's conductive characteristics are necessary in almost every major facet of the energy transition."
-- $FCX and $SCCO come to mind.

[Chaffey]

Total agreement with Jeff . My portfolio has been OK with copper oil and coal. But my Clean Energy Fund is down 15%. We need further investment in this field to bring down the carbon footprint. Also I want 2 winning strategies. I agree that Nuclear will get us to our goals of significantly lowered carbon. Our actual air on streets and in cities will actually be visibly better with an electric economy and lots of jobs will be created. Every home in America should have solar collecting shingles on their rooves.

[Total Returns]

“transition from a lower-waste, lower-density fuel (oil and gas) to a higher-waste, higher-density fuel (wind and solar); “

Hmm…this feels backwards…would think fossil fuels are higher waste but also higher density. Though I guess depends on what you mean by waste. But surely oil is super dense compared to wind/solar (and less so than nuclear). I’m very long fossil fuels, particularly midstream. My concern is not wind/solar…it’s nuclear. If people ever open their eyes they’ll see the answer to this whole green energy thing is right in front of them and always has been…nuclear. Imagine how good, efficient, and safe modern nuclear could be…

[Mr. Gumbo]

@Total Returns why do you think nuclear isnt often talked about as a solution?

[n00binvest19]

@Mr. Gumbo because it can’t be hustled by the DC beurautocrats and their families to enrich themselves. These people are scum

[J-UK]

@Total Returns yes that was confusing, oil and gas are definitely more energy dense than wind/ solar in the traditional sense. Not sure what he is referring to.

[Rob634]

Anti-nuclear sentiment borders on superstition at this point. Waste processing and storage are political issues, not an engineering ones. The US would have a permanent long term storage solution if not for a Senate Majority Leader from the state where that site was to be located.

The primary problem with nuclear is that it's incredibly expensive. But if you accept the cost estimates for not reducing carbon emissions, they far exceed the cost of nuclear.

[condormoney]

@Rob634 Your basing your cost analysis off the old Nuclear Reactors. Terrapower will ba able to produce SMR for less than a Billion at scale along with the speed and efficiency of a manufacturing line. They then take the prefabricated pieces and put them together at site. Along with Triso fuel. You have the cheapest, reliable, cleanest and safest energy source created by man (Not, "known", that would be Fussion).

[goutte d'eau]

@Rob634 Last September, a group at MIT successfully tested a method of generating a nuclear fusion reaction that produced a huge amount of energy much greater than the energy it used to operate the device. They hoped to build a small electricity pilot plant using this method by 2025. I think is a ray of hope for generating huge amount of electric power without radioactive wastes or problems. It only uses water and there no emissions.

[litwos]

He commented that the success in reducing the emissions of sulfur, to reduce smog and acid rain, has increased global warming over the last 30 years. As the suns energy makes its way to earths surface instead of being reflected by the smog layer.
We are much better off without the smog and acid rain, but isn’t the effect of reducing smog an interesting observation.

[AwokenTheLBC]

@litwos yes if ones old enough and recall George Bush seniors efforts there. It actually worked quite well. Needed to be followed by carbon cap and trade but alas

[tetech]

@litwos yeah that's it outdated view now. Nox is the primary ingredient of photochemical smog has been proven to be a stronger warming gas than CO2. I bought stock in Mazda they have come out with the very low nox engine that could be applied to diesel as well.