Thinking out aloud about commodities.

If the mortgage rate has doubled, of course, housing is going to slow. That means less demand for lumber, steel, and all the stuff that goes into a house. If goods demand has declined, as services rise, that means less demand for copper, aluminum, and stuff that goes into toasters & TVs.

If the emerging markets slow, because of reversed capital flows, because of less or lower share of wallet left over after food and energy, then the incremental demand for commodities will decline.

What plausible path is there to maintaining present pricing?

We have a sizeable exposure to AWC and more modest exposures to BHP and IPL. We are still very underweight metals and mining and in general quite underweight resources.

AWC has underperformed, equally, about half the cost curve is loss-making given current pricing (revenues not high enough given energy impacts), which is likely unsustainable. Either that uneconomic production exits, in which case the supply curve shifts, or the price of the commodity increases, and AWC should do well in either case.

Longer run, the positive demand case for aluminum as a transition to renewables enabler suggests that having exposure at current pricing makes good sense.

But the point of the note is not so much about the relative merits of AWC, BHP, or IPL, but rather the observation that we cannot see a path to permanently higher commodity prices.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.