Davos WEF 2022 Editor’s Notes: Commodities Rising And Solutions That May Pose Problems

Follow this daily blog by BQ Prime's Managing Editor Menaka Doshi for all that you must know from the 2022 World Economic Forum Annual Meeting. Read the first, second, and third blog posts here.

“The ESG transition is requiring more minerals while ESG itself is making sure mining more minerals is becoming difficult,” says TV Narendran, managing director of Tata Steel, recounting what he heard in one of the discussions at Davos.

Narendran was one of four commodity leaders I spoke to on Wednesday, and not one thought prices are close to the peak.

Tata Steel Managing Director TV Narendran, during an interview, in Davos, on May 25, 2022. (Photograph: BQ Prime)

"We'll see commodity prices higher than what we've been used to in the past 10 years," the Tata veteran said.

Vedanta Chairman Anil Agarwal's bullishness is evident in the $20-billion investment plan over the next four-five years, the bulk of which will go to the group's metal and energy business.

Vedanta Resources Chairman Anil Agarwal, in Davos, on May 25, 2022. (Image: BQ Prime)

Kumar Mangalam Birla, chairman of the Aditya Birla Group, a conglomerate with interests spanning aluminium, copper, cement, retail and financial services, says commodity prices are difficult to forecast, especially given the multitude of factors, from war to Covid-led supply-chain disruptions, supporting this rise.

But he, too, is betting $10-billion on expanding various group businesses, of which over $2.5 billion will be in the aluminium major Novelis. "We are actually looking at multi-decade sectoral trends. Therefore, to some extent, what is happening is a bit like froth.”

Aditya Birla Group Chairman Kumar Mangalam Birla, in Davos, on May 25, 2022. (Photograph: BQ Prime)

The direst warning came from Fatih Birol, executive director of the International Energy Agency. This summer driving season could prompt crude prices to rise beyond current levels of $120 per barrel as additional supply from the United States, Canada, and Brazil will start only towards year-end.

Could prices go as high as $140-150 per barrel, I ask. He says he hopes not. In my book that's not a no.

IEA Executive Director Fatih Birol, at Davos, on May 25, 2022. (Photograph: BQ Prime)

The one big dampener on commodity prices will be if China's economic activity remains subdued due to Covid-related shutdowns.

None of this bodes well for consumers or businesses. Even for commodity majors, it can backfire as India's steel industry has just witnessed. Ironically, the recently announced export duty will cast a cloud of uncertainty over capacity additions. ArcelorMittal Nippon Steel India said it is reconsidering its Rs 1 lakh crore expansion plan.

ArcelorMittal Chairman and CEO Lakshmi N Mittal, with Karnataka Chief Minister Basavaraj Bommai, at Davos, on May 25, 2022. (Image: @NiraniMurugesh/Twitter)

That's the opposite of a solution.

In energy, the tragedy is that shortage and high prices are diverting some investments away from renewable energy towards enhancing fossil fuel capacity.

We're all set to pay a higher price, in more ways than one.

Read more from BQ Prime at Davos 2022:

→ Sanjiv Bajaj Says World Looking Up To India Amid Sombre Mood

→ Sumant Sinha On Financial Viability Of Renewable Power

→ Birla Scouts For New Businesses Alongside $10-Billion Growth Push

→ Anil Agarwal Says PSUs Can Fetch Four Times Value When Privatised

→ TV Narendran Hopes Steel Export Duty Is A Short-Term 'Speed-Breaker'

→ IEA's Fatih Birol Says Energy Crisis Will Reorient Global Trade

Menaka Doshi is Managing Editor at BQ Prime.