Two Critical Goals for Humankind
For humankind to have any hope of a decent future, it must achieve two goals. One is transitioning to a world powered largely by renewable energies. The other is sharply narrowing the enormous gap between richer and poorer countries.
These two goals are closely interlinked, in that greater equality among nations, beyond its inherent fairness and morality, is a necessary condition for reaching a sustainable world.
Separately and together, these daunting but essential tasks point to a dramatic long-term increase in demand for vital natural resources. I expect this will lead to surging prices. For investors, the trends create enormous opportunities.
The Data Tell the Story
Let’s start with the big picture along with supporting data. As we’ve stressed before, building a sustainable world will take enormous quantities of natural resources to create the renewable infrastructure needed on a global scale.
The bulk of these resources is located in the developing world, whose living standards greatly lag those of the developed world. Average per-capita incomes in developing nations are less than one-fifth those in richer nations.
According to studies by the U.N. and the OECD, the developed world, with only around 15% of the world’s population, consumes 60% of the world’s materials – everything from copper to sand to oil and gas – while generating around 45% of global economic output. The developed world, however, contains only about 22%, or 19 billion tons, of the world’s materials. Developing countries have close to 70 billion tons, or 78% of the total.
Moreover, those figures were reported in 2017, and the gap today is probably even greater. Between 2010 and 2017, the level of materials in the developed world was largely unchanged as materials consumed were in line with materials discovered.
In the developing world, however, material resources increased by 23%, or 3% a year. That isn’t surprising given that almost by definition, less developed countries have had less opportunity in the past to unearth the natural resources their boundaries contain.
Demand for Resources to Climb
This data matters a lot. Studies by the U.N. and analyses by the excellent website global infrastructure hub (gihub.org) project that over the next two generations, daily worldwide consumption of materials will climb nearly 70% to about 168 million tons a day.
A major reason will be infrastructure creation. Today infrastructure accounts for about 52% of material usage. Within two generations, that will rise to about 55%. The outsized gains projected for resources devoted to infrastructure reflect the urgency of creating infrastructure in developing countries, with much of it necessary to access the resources needed for a sustainable world.
For me, a projection that most stands out is that worldwide per-capita consumption of materials is expected to climb by over 30% as developing countries strive to improve living standards. For developing countries to catch up, overall world growth will have to accelerate sharply. That points inexorably to a dramatic rise in demand for all the materials needed both for infrastructure (roads, rails, ports, etc.) and non-infrastructure edifices such as hospitals and schools.
Worth noting is how remarkable it is that between the end of WWII and the beginning of the current century, the developing world grew more slowly than the developed world.
The Developing World Is Catching Up
Even in terms of purchasing power parity (PPP), as recently as the 1990s the gains in the developed world continued to outstrip growth in the developing world, further widening the already large differentials in economic power and per-capita income.
However, as the current century began, growth in the developing world began to accelerate and outstrip growth in the developed world, a trend that has continued to gain force.
No matter what metric you use, during this century’s second decade, the total economy of the developing world surpassed that of the developed world, although on a per-capita basis it still has a long way to go.
The bottom line is that the need to find resources will be with us for decades to come. And this means a long-term uptrend in commodity prices is virtually assured, albeit, of course, with corrections.
Editor’s Note: Due to the megatrends described in the article above, we’re witnessing the emergence of an enormous, long-term demand for commodities.
Increasing your exposure to raw materials is a way to simultaneously tap growth and insulate against inflation. One of the world’s most vital commodities is copper.
Copper is in great demand but short supply, which spells huge future gains for producers of the “red metal.” For details about copper and how to profit from its rise, click here.