HSBC expert warns "Super Squeeze" on the raw materials market – high price levels expected

Due to several challenges in the raw materials market, prices for essential precious metals are likely to rise significantly, as HSBC chief economist Paul Bloxham recently explained. The market should get used to high price levels; after all, no relief is expected in the near future.

• Price pressure on the raw materials market
• Climate change in view
• Wars in Ukraine and Gaza Strip

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Super squeeze ahead?

Supply bottlenecks could push raw material prices to further highs in the coming months and years. This is the opinion of Paul Bloxham, chief economist for the greater Sydney area at the major bank HSBC. As the strategist explained to “CNBC”, he clearly sees supply-side factors in the global raw materials markets that point to a “super-squeeze”. “If the high raw material prices are due to supply bottlenecks, things will look very different for global growth,” he warned in the interview. “We believe the deeper supply-side super-squeeze factors will still play a key role in keeping commodity prices high.”

Bloxham identified three main reasons for this expected development.

Supply chains slowed by climate change

As the HSBC expert explained to the US broadcaster, climate change, among other things, is causing a supply bottleneck on the raw materials market. Various providers are struggling with the changing weather conditions. “The fact that this is disruptive to supply chains and the supply of raw materials, particularly in the agricultural sector, is self-evident,” said Bloxham.

Lack of expansion of metal extraction

The analyst continued that although numerous market participants have already recognized the problem of climate change, the energy transition is currently not being sufficiently supported. Investments in key materials are necessary in order to achieve zero net greenhouse gas emissions in the future, which currently benefits the demand for copper, aluminum and nickel, which are essential for environmentally friendly energy sources. However, Bloxham currently sees the expansion of production facilities for these metals at an inadequate level. The result: supply bottlenecks are to be expected for the corresponding raw materials, which in turn will drive up the prices for the urgently needed transformation metals.

Low iron ore inventories

“That seems to be the case with many commodities at the moment,” Bloxham added, referring to iron ore. Stocks for the mixture of iron and rock are currently decreasing significantly, but at the same time there is a lack of investment in expanding production. Here too, rising prices are to be expected due to the low capacities. The iron compound is needed primarily for the production of steel.

Geopolitical risks block raw material supplies

Bloxham also cited geopolitical risks as a third trigger for higher prices on the raw materials market, especially the wars in Ukraine and the Gaza Strip. The Houthi attacks on merchant ships in the Red Sea and the resulting disruption of shipping trade also have a negative impact on raw materials trade.

Duration of the super squeeze cannot be foreseen

The HSBC chief strategist did not explain how long the high price level would likely last. However, he stated that the duration depends on the three risks mentioned. “The super-squeeze could be deeper or longer lasting if geopolitical, climate-related or energy transition-related supply disruptions are more severe than expected,” Bloxham said. However, an end to the high price pressure could result in a global economic downturn, as this would reduce the willingness to invest and therefore require fewer raw materials. Alternatively, new processes for extracting the required metals could be developed that would make their production or mining much easier and more cost-effective, which should also take the wind out of the sails of the super-squeeze. Until then, the development on the raw materials market will be “not so positive,” said Bloxham.

Editorial team finanzen.net

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