– The energy transition is a great catalyst for demand for raw materials such as copper, aluminium, palladium, lithium, nickel… Do you think this is going to boost the prices of these raw materials for years?

Yes absolutely. The energy transition is very intensive in raw materials and supposes an additional demand in technologies such as electrification, wind and solar energy. At the supply level, which is our long-term thesis, companies are not prepared for this additional push in demand. At the supply level, we believe that hard times will come to satisfy all this additional demand. We believe that in the medium and long term they have a long way to go because there is currently underinvestment on the supply side, while demand is going to increase in the coming years.

– They also point out that urbanization and the growth of the middle class in emerging countries drives this type of minerals and raw materials… What type of raw materials do you give greater potential to/do you overweight in the Allianz Global Metals and Mining fund?

That means there is a lot at stake. Urbanization and demographic trends are a current catalyst and play an important role. So in addition to the energy transition that you mentioned before, investment in infrastructure is also very important. We are very confident that base metals like copper and aluminum will be in high demand from the standpoint of urbanization pulling demand and adding to poor supply performance. So the gap between the two forces is likely to drive prices higher.

– In the short term, however, industrial raw materials accumulate declines in the heat of the possible recession in developed economies and the slowdown in growth in China. How does the war in Ukraine affect the short and medium term scenario?

Yes. What we have mentioned before is the medium and long-term scenario for raw materials. Of course, in the short term, as you mention, the situation in China and the latest news put a question mark on its economic growth. Of course, the situation in Ukraine adds more uncertainty. When we talk about China, the zero Covid strategy is something that can cast doubt on the economic growth of the country and, therefore, also world growth. So this definitely keeps us a little bit more, shall we say, cautious.

As for Ukraine and Russia, the London Metal Exchange (LME) is debating whether Russian metals will continue to be accepted for trading. Russia is quite important in a couple of basic products, such as nickel, aluminum, palladium, potash fertilizers… All these products are very important and influence inflation. Of course, all the applications that these types of materials have and the companies that consume these raw materials are striving to find additional sources of supply. This is exactly what the industry is currently facing, a shake-up and in a way, one could argue that this is already a harbinger of de-globalisation. It is clear that the world has changed, in the last 20 years we have only seen one direction in globalization and now we are close to reaching its end and a little could be reversed.

– The rise in interest rates and the higher cost of financing, do you think they slow down the investment plans of companies and with it a lower demand for basic materials?

Yes. Of course, the change in interest rates and their rise clearly cloud the growth prospects for all types of investment projects, and there is also concern in the real estate market. All this is not easy for companies, but I would say that it is not such a big impediment because most mining companies have healthy balance sheets, are well capitalized, are not highly leveraged and do not have relevant debt maturing in the next two years. … So they’re pretty independent in that sense.

– Much is said about China’s rare earths. What importance do you give them at Allianz?

Rare earths is a very specialized topic. The interesting thing is that actually, although they are called rare earths, they are not rare, they are actually quite abundant. The only thing is that the processing of rare earths is complicated and often extremely controversial from an environmental point of view. So that’s why Chinese suppliers have built a dominant position in the rare earth market. In fact, until now there were hardly any non-Chinese companies supplying the minerals present in rare earths, but this is about to change. We already have a (western) holding company also that is active in that business, we could see an interesting trajectory for this holding company, but I guess at our fund level it will only represent a small fraction because it is a small market and it will never be in the top ten positions .

– What must a company have to be among the top positions in the fund? How do you select them?

We are not allowed to talk about individual companies. However, we can say that we override a group of companies, for example copper mining companies, because we believe that copper plays a key role in terms of electrification, which is a pillar of the energy transition. Definitely, the future of the specialized copper companies is quite promising, although currently in the short term we see some disappointments on account of China and the recession that is coming in some areas of the world. This may be an interesting window of opportunity to invest in some of these companies.