Chris Berry, co-editor of Disruptive Discoveries Journal, believes the global economy is in for a period of disinflation or deflation – not a supportive environment for commodities.
“We see a lot of excess capacity in the global economy right now, we see an excess of labour, an excess of capital and an excess of dollars sloshing around in the global economy — all of which needs to find a home and be soaked up,” Berry told TNM TV news at the Canadian Investor conference in early June.
“And until that happens, we see a very challenging period for the commodities sector going forward.”
Berry, who writes the Disruptive Discoveries newsletter with his father Michael Berry, explains that a disinflationary or slow growth environment implies a cap on wages, living standards, and on the commodity demand that underpins such growth.
However, the ongoing trend toward a rising standard of living in the developing world, something Berry calls a “convergence of lifestyles” between the emerging world and the developed world, is still in place.
And for selective investors, there are still opportunities in commodities.
“I think you need to look individually at each commodity, look at its supply and demand dynamic, look at where it’s used today, look at next generation technology or uses, and try and formulate an idea going forward,” he said.
Energy metals such as uranium, lithium, graphite, copper and cobalt are a big part of Berry’s investment thesis.
“It has to do with the idea that no middle class has either grown or sustained itself throughout history without reliable access to affordable energy,” he said.
Berry is particularly interested in uranium, cobalt and the esoteric metal scandium.
“Scandium is a very, very tiny market – about 15 tones per year. There’s really no primary production, it all comes from either tailings or as coproducts elsewhere,” Berry said.
Despite its limited supply, there numerous high-tech applications for scandium, including solid oxide fuel cells and the aircraft business, where aluminum-scandium alloys can make planes lighter and more fuel efficient.
Berry says the potential growth in demand from solid oxide fuel cells alone is “supernormal,” and he believes scandium junior EMC Metals (TSX: EMC) could be poised to benefit.
While growth in the scandium market is predicated on a reliable source of scandium, that is what EMC hopes to be able to provide in the coming years, Berry said.
EMC primary project is the Nyngan scandium project in New South Wales, Australia.
Watch the full TNM TV news interview with Berry here.