Shortages

With the newswires as grim as they are there is a risk of a widespread shortage of fun. Laughter. Mischief. That general joie that comes with pink gin and gypsy swing. That said, there are shortages. There are shortages everywhere. From oil to critical ‘green’ metals like cobalt and lithium, through to copper and iron. Almost every commodity going appears to be heading into a long-term structural deficit. Short term, prices gyrate up and down, driven by the mood and chitter-chatter on the depth of the incoming recession, but long-term there is less drilling, less digging, less prospecting; and those mines that are in operation are getting less and less out of the fast depleting earth’s crust than they did in the past. Grades are falling. Costs, too, from wages to diesel, are rising. Take a Chevron. A goliath in the business of keeping Global Inc in full scale operation. Those in the know, know, but those who don’t graze year-end accounts might not know that back in 2013 Chevron produced about 3m barrels of oil per day. They also splurged about $40bn in capex. Last year they also produced about 3m boe/day, but were spending about $8bn in capex. In a little under a decade production has flatflined. Capex meanwhile is down a whopping 80%. Swap Chevron for the name of any other major commodity player and the trend is much the same. Production flat to down, capex down a lot more. Reserves, meanwhile, can only last so long. And all this at a time when banks are no longer returning calls, regulatory winds howl, and any remaining large scale deposits are to be found further and further off the main road. Management teams of leading commodity companies frequently talk of new mines taking ten to fifteen years to ramp up to production. Tick tock, tick tock. The shortages, it is fast becoming apparent, are not going away any time soon. Short term price moves be damned.