ASX mining shares are in the spotlight after a bullish commodity forecast from global broker Goldman Sachs.
Investment in exploration and production expansion has been lagging. In turn, this has crimped new supplies in an environment of rising demand as the world looks to spring back from the pandemic.
In many parts of the world, including for ASX mining shares here in Australia, you can add COVID-driven labour disruptions in the sector dragging on increased supplies.
Are ASX mining shares the place to be right now?
While the broker's analysts didn't home in on any specific shares, head of global commodity research at Goldman Sachs Jeffrey Currie noted that commodities can help investors hedge against inflation as well as rising geopolitical risks.
The prospect of a series of rising rates from the US Federal Reserve this year wasn't going to impact demand for one to two years, he said.
According to Currie (quoted by the Australian Financial Review):
Given January's CPI print, and the risks for rate hikes which will take 12-24 months to slow commodity demand, there has rarely been a better time to add commodities to a portfolio as a hedge against inflation, geopolitical risks and potentially hostile market environments.
Noting that China is pumping fresh stimulus into its economy and that the Europeans are only now tapping into their fiscal recovery fund, Currie added:
Not only are demand levels for all commodities now comfortably above pre-pandemic levels which is stressing supply, but the tailwind from synchronous stimulus is facing a resurgence…
Should European interest rates go positive this year as our economists believe, the bid for euros would further weaken the dollar creating an even greater tailwind for commodities.
If the already voracious global demand for commodities heats up further, it will also throw up some greater tailwinds for ASX mining shares.
3 ASX 200 miners
Investors keen on ASX mining shares have plenty to choose from in the Aussie markets.
We can't cover even a tiny fraction in this article so we'll have a brief look at 3 of the bigger players listed on the S&P/ASX 200 Index (ASX: XJO), which is down 4.5% so far in the New Year.
First up are iron ore giants Fortescue Metals Group Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO).
After collapsing to US$87 per tonne in mid-November from highs of some US$220 per tonne in mid-2021, iron ore has leapt back, currently trading for around US$120 per tonne.
This has helped propel the Rio Tinto share price to a 22% gain in 2022, while the Fortescue share price is up 14% year-to-date.
Next, we have ASX mining share Whitehaven Coal Ltd (ASX: WHC).
Just as crude oil prices have rocketed, so too has the price of coal. And that's helped the Whitehaven Coal share price gain 13% in 2022 and 105% over the past 12 months.
ESG investors and ASX mining shares
While most ASX mining shares are working hard to improve their sustainability credentials, many ESG investors – both retail and institutional – aren't buying into their stock.
This, Currie said, will only drive the commodity bull market to greater heights.
According to Currie (quoted by the AFR):
With warning lights flashing across commodity markets, it would be understandable to expect capital to be flowing toward commodities and commodity producers in response. Yet this is still not the case, both for hydrocarbon producers and key transition mineral producers alike…
This continued reticence in commodity investment remains at the heart of the structural side of our bull market thesis – the longer this wedge remains, the longer it takes for commodity supply to catch up to higher demand.
While not all ASX mining shares will benefit equally, if Goldman Sachs has this right the demand for their commodities should remain resilient for some time yet.
