From the AFR this morning:

Trading the ‘perfect storm’ for resources

Alex Gluyas - Markets Reporter - Jun 28, 2021 – 5.00am

Battery minerals: the next leg-up

“It means we’ve got a situation where the supply-demand dynamics look very strong and we see it as a Goldilocks scenario.”

There’s perhaps no better example than the battery minerals sector, which Stewart and Smith have weighted the fund towards in anticipation of the elusive lithium boom finally coming to fruition.

The fund’s tilt towards the sector occurred in August last year having steered clear of it before given the oversupply and pricing of battery materials.

But conditions are now ideal, meaning that’s where the global resources fund will be focused over the next year.

“The volume of electric vehicles sales going through Europe and the US is phenomenal,” Stewart says.

“Because of the terrible environment over the last few years with weak pricing, driven by supply, but also weak demand from COVID, it means there’s been no investment in lithium.”

Over the next six to 12 months, there won’t be enough volume coming online in lithium production to meet demand.

Ausbil has positioned in two lithium companies – Orocobre at 6.2 per cent and Pilbara Minerals at 5.7 per cent – being among the top five long positions held by the fund.

The electrification theme occurring across the globe also leaves it bullish on rare earths, with the fund holding a significant position in Lynas. Rare earths are used in high strength magnets for wind turbines, electric vehicles and energy efficiency applications.

Graphite rounds out the third commodity Stewart sees as being central to an electrified world, with a 5.4 per cent long position in Syrah Resources.

On the short side of its book, iron ore is the main focus because of the perceived sustainability of prices, alongside global diversified miners, with Stewart seeing better leverage in pure-play names.

Given the positive outlook, the resources duo’s net market exposure remains towards the upper end of its normal levels.