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- Massively growing demand for natural resources
Natural resources companies play a crucial role in the global economy. According to estimates by the United Nations, human consumption of natural resources is expected to reach a staggering140 billion tons per year by 2050[1]. These resources include minerals, ores, fossil fuels, and biomass. Natural resources, also known as natural reserves, are biological, mineral, or aesthetic goods provided by nature without human intervention. They serve various purposes, whether economic or intangible. Examples include forests, surface and groundwater, fertile land, as well as energy resources such as oil, natural gas, and geothermal energy contained in rock layers.[2]
Natural resources are essential for our consumption of goods, whether through direct use or in the manufacturing and delivery process. They often face cyclical demand and occasional scarcity, driven by growing population and correspondingly increasing consumption. Given the pressure on finite resource reserves, we constantly seek solutions to circumvent material shortages. This can be achieved through research into substitutes, exploration of new deposits, material recycling, or the development of more efficient technologies. The dynamic interplay of supply and demand creates a challenging environment for global raw material companies.
Global material extraction is growing rapidly
Sources: Global Material Flows Database, DWS Investment GmbH as of 6/11/24
A characteristic feature of raw materials and associated companies is their diversity. Differences exist both between and within various categories of raw materials. While some commodities, such as industrial metals, are highly responsive to fluctuations in global demand – as Bloomberg data shows others such as energy are less elastic. Precious metals like gold, on the other hand, are sensitive to factors such as interest rates and inflation.[3]
Geopolitics also play a significant role in price determination and can lead to price volatility in both raw materials and the equities of raw materials companies. Risk premiums related to global conflicts and disruptions in supply chains influence demand for hedging raw materials prices and the valuation of companies. Examples of this include the COVID-19 crisis, ongoing conflicts in the Middle East, or the war in Ukraine. These substantial risks should be carefully considered.
Globally, the demand for materials has steadily increased over the past five and a half decades. Annual global raw material extraction rose from around 31 billion tons in 1970 to nearly 107 billion tons today[4]. The insatiable thirst for resources in modern consumer society poses an ever-growing global challenge.
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