Oil could hit $ 200 a barrel, commodities to watch in 2022, says Luke Smith of global fund Ausbil
One area that we believe is underestimated by the market is the demand for rare earths used in high resistance magnets.
From the perspective of Australian national equities, the basic positioning of the Ausbil Global Resources Fund towards these exposed commodities is targeted on Syrah Resources (graphite), Allkem and Core Lithium (lithium), Sandfire and 29Metals (copper) and Panoramic Resources (nickel).
Which commodity are you the most bullish and bearish on? Have you made any position changes in the fund to reflect this?
We believe that China will likely seek to support its economy in the short term, and we are adjusting portfolio positioning modestly to take advantage of this vision. Obviously, this would be positive for the whole commodity complex, when combined with very high demand from the rest of the world.
Battery materials remain a central position in our fund, as it has been for almost 18 months. We continue to find opportunities in this space and consider that the space is still under-researched and under-owned by investors.
What is your outlook for the energy sector this year, can Brent hit $ 100 a barrel?
Sitting in early 2022, we envision several years of positive economic growth for the world, and with that comes a strong underlying demand for oil.
We expect oil prices to continue to strengthen above US $ 100 per barrel in the near term, and we would not be surprised if the commodity trades at US $ 200 over the next two years.
While the global energy crisis of the past six months has confirmed anything, with spot LNG trading well in excess of US $ 200 per barrel of oil equivalent, these “structurally challenged” fossil fuels continue to be an integral part of the mix. short-term energy. Almost a decade of underinvestment puts them in a position to react in an extremely violent manner through the current energy transition.
Unfortunately, for Australian investors, the ASX large-cap energy sector has behaved with some ambivalence about the dominant strength of the commodity. This is very much at odds with American oil and gas (E&P) sector, with the United States E&Sector P up by more than 80% in 2021.
The combination of an underweight stance in the Australian energy sector, our expectations for the outlook for earnings strengthening and unchallenged valuations support our view that we could see an explosive performance in energy stocks in 2022.
You pointed out the opportunity stemming from China’s energy crisis, what products and actions will that benefit?
Aluminum and zinc are two other commodities that we have targeted within the fund that have taken advantage of this period of energy shortages, but we have reduced our exposure more recently as we expect the stress resolves on its own.
One of the most opaque raw materials, less focused on the market but which continues to benefit from the energy crisis, is graphite, the prices of which have strengthened significantly in recent months.
At present, energy constraints in China are causing constraints on the production of synthetic graphite, which supports natural graphite prices in the short term. We continue to have significant exposure to graphite thanks to our position in Syrah.
What are your interests outside of work?
Managing a global fund can result in relatively abnormal working hours as we seek to manage both international trading hours and company meeting hours. So I try to make the most of my free time outside of work with my family.
It’s clear that there have been some significant negatives over the past two years due to COVID-19, but one of the positives from my perspective has been the ability to spend more time with my family. , and in particular my wife and my three young children accordingly confinements and flexible working hours.
It’s hard to spend time in Camp Cove, arguably the best beach of all.