Suddenly, commodities are popular again.
Just before Christmas, Goldman Sachs Group released a market outlook that predicted the onset of a new commodity bull market.
Commodity prices are at their highest levels in a decade. There’s an increasing need for copper, zinc, nickel, gold and base metals, and the rising prices are great news for communities throughout Northern Ontario.
Why is this happening? As Crescendo Equity, a recognized provider of investment opportunities in Canadian real estate projects notes, commodities are influenced by global economic trends. As the world begins to recover from the pandemic, countries are making moves towards a greener future. Because of this, the value of commodities is expected to rise.
In Canada, the financing model also supports junior exploration companies. Sault Ste. Marie, Sudbury and Timmins have significant natural resources.
Commodity prices are believed to be a leading indicator of inflation and real estate tends to appreciate with inflation. The real estate market in Sault Ste. Marie will benefit.
If we are indeed at the start of a new commodities super-cycle, this will certainly affect the local economies and job markets. Sudbury, Timmins and Sault Ste. Marie are all expected to benefit from a commodity boom.
How will we know? There are three signs to be on the lookout for. One, there will be a global economic recovery in the wake of Covid-19; two, we’ll see sudden price inflation of commodities; and three, Canada’s financing model will enable junior companies to embark on commodity exploration.
According to a Commodity Price Report via TD Canada Trust, Canada is expected to see a 5.5 per cent rebound in global economic growth in 2021. The global emphasis on a greener future is another good sign; the key components used to make electric-vehicle batteries—metals such as copper, nickel and lithium—will be in greater and greater demand.
Since the Spring, the prices of commodities have risen to their highest levels in a decade. This is partly due to a buying spree by the Chinese, together with interest from global macro investors.
Consider copper, which has experienced a notable appreciation in value. At the end of 2020, it was priced at $7,520 a ton, a seven-year-high made possible by an infusion of investor capital. In fact, TD’s Commodity Price Report notes a price increase of more than 20 per cent, year over year, for each of copper, zinc, nickel and gold.
Canada is known for being the world’s mining finance capital, because their finance model is very supportive of junior exploration companies. These companies tend to be publicly traded as well, which increases their ability to raise capital. This capital can directly fund new exploration.
The effect on real estate
Cities with the potential to excavate commodities will see their economies and real estate markets positively impacted. Sault Ste. Marie could be home to a proposed Noront Resources’ ferrochrome production facility. Noront acquires, explores and develops base and precious metals, including nickel, copper, platinum group metals, chromite, iron, titanium, vanadium, gold and silver. The new facility could employ up to 500 people directly and over 1,000 indirectly, if approved.
There are also, of course, a number of active mineral explorations happening in townships that neighbour Sault Ste. Marie.
Another strength: thanks to its location near the Canada-US border, Sault Ste. Marie has received official designation as a foreign trade zone (FTZ) point. It will be the very first in Northern Ontario, and one of 15 in the country. With this designation, the city will be able to offer exemptions from duties, tariffs and taxes for businesses that import and export. This is advantageous not only for companies in Sault Ste. Marie, but for those in surrounding cities as well.
While these are early days yet, the future is bright. A commodity boom brings great hope and more employment opportunities for Sault Ste. Marie. Because of the affordable cost of living, housing will be in high demand. The effect on the real estate market will be positive.
Commodity prices are believed to be a leading indicator of inflation. Since real estate tends to appreciate on par with inflation, now is the ideal time to invest in real estate in commodity-rich markets.
For more information, visit Crescendo Equity.