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Milan Cacic

April 05, 2024

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MORE TECHNOLOGY = MORE COMMODITIES

When you think about new technologies like solar panels, wind turbines, electric vehicles, cloud computing, and (most importantly) artificial intelligence, commodities are probably not the first thing that come to mind. Maybe they should be! All of these technologies require considerable amounts of metals and minerals in their construction, and all of them need to hook up to the electrical grid to either consume or contribute energy.

 

The demand for metals and minerals for solar panels, wind turbines, and electric vehicles is pretty obvious, however, the metal and mineral demand in cloud computing and artificial intelligence is a little more abstract. As the demand for artificial intelligence grows, so does computing-power demand. This computing power requires more hardware and more chips. The chips are made from precious metals, aluminum, copper, and cobalt. The data centres that are being built to support these new technologies require a massive amount of energy. This energy is transported by copper lines that use wooden or metal transmission poles as well as transformers and other components that consume all kinds of metals and minerals. Not to mention, commodities are being used to build and maintain power plants for ever-expanding grids. No wonder commodities are breaking up!

 

As you can see from the chart below, the typical commodity cycle lasts around 10 years. The current cycle that we are in started in May 2020, rallied until May 2022, and then went sideways until December 2023. Since then, it appears to be breaking out for its next leg upwards. If we look at previous commodity cycle runs, then we are not even halfway there. Of course, history does not always repeat itself, but it is helpful to look at past trends to get an idea of where we stand. If we use history as our guide, the future appears to look good for commodities.

 

Graph

Source: Auspice Capital & Bloomberg

 

I've also included a piece from our CIBC Economics team entitled "Your rent is due…to decelerate”.

 

As always, if you have any questions, please feel free to give us a call at any time.

 

Have a great weekend.

 

Milan

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