The chief economist at %HSBCbank (NYSE: HSBC) says that global commodity markets are in a “super squeeze” and that higher prices are likely permanent.
HSBC’s Paul Bloxham says in a new report that supply disruptions and a lack of investments have pushed commodity markets into a super squeeze that is characterized by higher prices driven by supply constraints rather than demand.
Furthermore, commodity prices are likely to remain elevated over the long-term due to factors that include political uncertainties, climate change, and the worldwide green energy transition.
“The super squeeze could be deeper, or more prolonged, if geopolitical, climate change or energy transition related supply disruptions are larger than expected,” said Bloxham in a recent interview on CNBC where he discussed his outlook.
The pursuit of a net-zero carbon future is fueling demand for metals such as %Copper and %Nickel. But there is insufficient investment to obtain these critical minerals, leading to a supply squeeze for metals such as copper, aluminum, and nickel, he said.
As energy transition ramps up, the world could also face a shortage of metals such as %Graphite, cobalt, and %Lithium over the next decade.
Large-scale mining projects can take 15 to 20 years to come online, notes Bloxham.
He adds that aside from clean energy metals, iron ore is also likely to see price rises due to falling inventory and a lack of investment into expanding capacity.
Iron ore has seen its price increase 24% to $135.48 U.S. per tonne over the past year, according to data from FactSet.
The HSBC economist did not say how long it will take global commodity markets to move out of the current squeeze, though he suggests that higher prices could become permanent if investments and capital expenditures aren’t ramped up.