Australian mining and energy has turned heads during the past 2 years, with excellent performance in comparison to the markets. But why has this been the case?
The S&P/ASX 200 Energy [XEJ] rose as high as 36.5% in 2022, the highest level since the pandemic. Overall it is up 19.7% this year.
The Russia-Ukraine conflict has pushed the prices of coal, oil and gas to record highs. This has been no surprise seeing as Russia owns 24% of the world's gas supply, being the world's second-largest gas producer and exporter with the largest gas reserve.
Similarly, the S&P/ASX 300 Metals & Mining (XMM) rose 17.3% early this year, before dropping 23.5% overall. The 12.1% decline is attributed to China's slow development caused by strict quarantine policy and its real estate industry, still affected by Evergrande's debt issues.
Comparing mining and energy to market performance, the ASX has not been positive since 1 January 2022, having dropped 10.6% overall.
What's next?
Analysts expect that commodity prices in mining and metals will recover as China's Zero COVID-19 policy eases and Chinese real estate begins to find footing.
President Xi Jinping has announced China will go "all-out" on developing infrastructure to support the economy, with metal demand expected to increase (Bloomberg News). The target GDP growth rate is 5.5%.
During COVID-19 lockdowns the demand for energy was unexpectedly low. However as majority of the world now begins to lift their pandemic restrictions, energy and fuel demand has surged.
As demand for electronic vehicles is continuously growing along with nations fighting against carbon emissions, lithium expert Joe Lowry believes that the predominant material in EV batteries - lithium - still has room to grow. In addition to electric vehicle development and charging station infrastructure, electricity transmission is required to reduce carbon emissions and connect renewable energy to the grid.
Copper prices will be driven higher by clean energy demand in the future, despite recent downfall. As we transition into clean energy, demand for this key metal is likely to soar as vast deposits become scarcer.
Will you be buying into the mining and energy sector?
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[Disclaimer: The material across our site is provided for informative purposes only and does not contain investment advice.]
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