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Products remain in a world of their own: We’re going into the age of undersupply


May 6, 2022
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In it’s Q1 profits call the other day, this is what energy huge Shell needed to state when asked if they were seeing need damage due to high costs:

  • No, “we see an ongoing boost in item need around the globe”
  • ” We certainly do not see a decrease in need”
  • ” We likewise see– by the method– is an ongoing reduction in financial investment in supply”

In any other duration in the post-2008 period if you were to see the mix of:

  1. A China shutdown
  2. An international development scare– especially in Europe
  3. A harsh thrashing in international threat properties

You would quickly see oil down upwards of 10%. Yet we’re on track to end up greater for 2nd week in a row.

It’s not simply oil either. United States gas costs are at the greatest considering that 2008.

Copper costs have actually fallen however this barely appears like the sort of cost action we’re seeing in other markets (though does bear seeing carefully).

Copper prices

If you decrease the list it’s the very same thing over and over. Steel costs stay high, lumber costs stay at traditionally high levels regardless of all the doom and gloom around real estate with home mortgage rates at 5.6%.


Decrease the list and it is difficult to discover any genuine indication of weak point.

Perhaps that’s still to come. Need stays high however markets are forward looking and the stock costs of product manufacturers are definitely underperforming the underlying products.

I can definitely see the case for care.

At the very same time, I return to this remark from Shell, which resembles what many other product manufacturers in many markets are stating:

” We likewise see– by the method– is an ongoing reduction in financial investment in supply”

If you dig into these products, it’s the very same thing over and over. Worldwide products have actually been chosen over and there’s no rush to construct a brand-new mine, even with costs high. Part of that is that product manufacturers are trading at such low multiples.

This is what Canadian steel manufacturer Stelco stated in today’s profits call when inquired about capex:

” We’re still taking a look at a really, really low numerous[for our shares] Trading at a bit over 1x. It’s really hard on the inorganic side to do anything. It would be dilutive for us to purchase anything.”

So business after business is just redeeming shares. So whatever international development carries out in the next year or more, it isn’t altering that we remain in a world that’s undersupplied in products.

Additionally, if you wish to support what Marko Kolanovic and others are stating– nations will be aiming to fortify tactical reserves of whatever.

There’s a signal in these costs. We remain in the age of undersupply.

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