CanaData 2021: Most signs point to rising costs, warns commodity expert

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Prospects of rising commodity prices, volatile energy markets and unreliable supply chains portend a tough turn for Canadian carmakers in the future, warned commodities expert Francisco. Blanch, warned delegates tuned in to the recently held CanaData virtual conference.

Blanch, head of global commodities at Bank of America Merrill Lynch, was introduced and interviewed by ConstructConnect chief economist Alex Carrick during the September 28 session, with Carrick arguing for a link between raw materials and Canadian construction balance sheets.

“Construction companies think of raw materials primarily in terms of how they cause cost increases, driving up the cost of building materials like asphalt and plastic pipes and everything,” Carrick explained.

“But there is the other side of it, and this is for Canada, higher prices can lead to better trade balance sheets, leading to investments in commodities and commodities, which is positive for construction. “

Blanch spent much of his presentation discussing the Chinese markets, including its volatile real estate sector and huge demand for commodities, because as the Chinese economy evolves, so does the rest of the world, t -he declares. China accounts for a huge percentage of global demand for raw materials critical to construction and the green economy, noted Blanch, with its steel share 29% of global demand and with 27% of global zinc demand. , 21% aluminum, 11% copper and 10% nickel.

Rising demand and therefore prices for essential supplies in China is a problem for Canadian manufacturers and the reverse is also true.

“If we see a slowdown in China, we might see some developer benefits from lower prices,” Blanch said, referring to steel and aluminum.

The Chinese real estate sector is currently in decline. Home loans in China are expected to fall well below 5% growth in 2021, compared to nearly 25% year-on-year growth in 2018. Housing and floor space starts both fell last year in China.

Blanch said aluminum smelters face power constraints in China, leading to steadily rising prices, and that the mandatory steel production cuts of 12.6% in August in China are also causing a rising iron ore prices.

Overall, the recovery in China is starting to falter, with demand for steel slowing due to declines in real estate and autos. Demand for steel declined significantly in July.

Globally, Blanch predicts oil could hit $ 100 a barrel this winter, especially if it’s a cold winter in China. Natural gas prices are also rising, with low European storage capacity and strong Asian demand coming together to create upward pressure.

“I continue to see more and more price shocks occurring throughout the energy supply chain,” Blanch said.

Oil prices have held up better than expected due to sharp cuts in OPEC-plus production and improving demand, Blanch observed, with driving mobility – personal car transport – rebounding, led by United States

“The macro picture is one of uncertainty, that of over-reliance on fiscal and monetary (policy) to stimulate the economy, an economy which, by the way, has been subjected to multiple supply shocks, ”Blanch said of the global picture. “It’s not just that we have shortages of computers, we have shortages of many of the raw materials that go into the production of much of the goods and services that our economy consumes today.”

The disruptions in supply chains are exacerbated by nationalism and other political trends of recent years. And the pandemic recovery strategies adopted by countries like Canada and most others – “spend, spend, spend” – add to the rise in supply prices, Blanch said.

These strategies that “distribute money to the people essentially drive up those prices,” he said.

Carrick and Blanch also discussed the impacts on global costs of accelerating the greening of the economy, saying it could also lead to higher prices and volatility.

The problems are that governments are spending large amounts of tax revenue just to support the transition, rather than the typical expansion of capacity, and at this point new sources of green energy are unreliable.

“We tried to move too fast towards the net zero goals, 2050, 2060, which is good,” Blanch said. “And maybe we’ll save the planet in the end. It will therefore be difficult to avoid extremely high and volatile energy prices throughout this transition. I think we have a first glimpse of what the future looks like.

Meanwhile, about 25 percent of global tax revenue goes to climate change measures.

“Once the bills start rolling in and people realize that we are not investing in capacity, we are not investing in improving our standard of living, we are just investing in decarbonization… that takes away essentially a quarter of all tax revenue, “he said.

Follow the author on Twitter @DonWall_DCN.



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