jeff cary i want to go to your microeconomics in chicago i want you to explain to our audience the constraints of supply build that so many commodities have these are tangible things and they are constrained on the supply side where theres some serious elasticities well we have on the supply side we like to call it the revenge of the old economy we have not invested in old economy production capacity in some cases five to 10 years the reason why is returns in the new economy were so much better that capital redirected towards tech then you overlay esg issues on this these sectors are severely starved of capital you take oil cap ex depending on where you are in the world was down 40 to 70 percent in the first half of last year tell us about the metals i mean i understand copper and were you know john and i are arguing about jeff lets stop the show do you quote london copper or quote chicago copper london copper 1788 very good there we go john farrell so copper we got coppers moving up tell us about the other metals where if price goes up supply doesnt come on does it well it takes anywhere from five to 10 years to bring on a new copper mine its the last of the old school commodities that you still dig out of the ground and thats where we have the real demand push because you have this green cap ex thats starting to begin to be you know its going to be behind this energy transition story because we now have a blueprint for energy transition in the us europe and china now something we didnt have eight weeks ago we believe the capex spend associated with this green capex is going to be somewhere around 16 trillion dollars over the next decade put that on par with china in the 2000s china spent 10 trillion so a real qualms about the same jeff were going to talk about the energy transition story in just a moment lets just stay on the metals for a little bit to talk about whats happened in the last 10 years as well and it started which i saw from rio tinto that shift away from volume to value the lack of investment weve actually seen in the last decade off the back of the top in the last supercycle jeff how profound is that when you start to think about the dynamics from here on out well i mean all these stories have zach same story you had very low prices over the last decade very poor returns in the sector under investment no demand now were adding demand on top of no supply and were creating really tight markets whether youre talking metals energy agriculture and at the core of the demand story is where the stimulus is going stimulus over the previous decade operated through the wealth channel and benefited higher income households today its benefiting lower income households who spend more on commodities so naturally were seeing a much richer more cyclical commodity intensive demand growth environment jeff youve always drawn a distinction between rtx commodities and cac thanks commodities and the ones that would do well in each environment where are we now both are doing well and the reason why i say that is because at this point right now we have capex going whether it is old economy in china to take urbanization from 60 percent up to 80 percent we have new economy demand through the investment and 5g networks and then we have green economy demand in terms of thinking about energy transition you overlay that on top of underinvestment you end up with relatively tight markets like youre seeing today well jeff there is a distinction though going back to the early 2000s we had the last commodity super cycle when it was driven by the boom out of china and it was all encompassing this feels different especially given the energy transition that you guys have been talking about this idea of a transition to green energy where does oil fit in on this kind of equation if the prices go up too high dont the oil producers just produce more well lets first talk about what happens to oil demand somewhere around 20 for 2020 for 2025 you begin to slow the demand growth and its not until after 2030 that demand growth actually tips over and starts to go negative what that means over the next five years the stimulus effect of all of this green spending actually amplifies oil demand now let me ask you this if we know we have a blueprint for energy transition in us europe and china and the clock is ticking on oil are you going to invest in long live oil production the answer is no so the only thing were going to invest in is short cycle production in the us middle east and russia thats it everything else is too risky to make investment so the hurdle rate to get investment in the sector is substantially higher than what it was historically this is fascinating this idea that because youre going to have so much infrastructure you will need that much more oil to sort of finance it et cetera where do the other commodities are soft commodities that we were talking about fit into this given the fact that they have more elasticity as tom was talking about well i think it goes back to the point where who is benefiting from the current stimulus right now its lower income households in fact if you look at consumption by postcode in the us and we can divide it up by low income versus high income you had turbo charged demand growth from low income households during january in the most but most of february so youre seeing that filter through that group consumes a lot more commodities than do the high income households and that includes livestock which has a big pull on grains and soft side i want you get in trouble mr solomon but i want you to go outside your remit your colleague john rts has over the decade has been absolutely brilliant about pushing back against the high inflation crew the socalled inflation these days do you see the inflation of your world folding over into young hatzius world or is it discrete well let me think about the evidence for cost push inflation it just does not exist its always demand pull inflation so the factors that are driving commodity prices end up potentially creating some inflation risk and i think now even your chances at getting up into that two and a half percent branch as we get into april and in may when the comps start to get relatively positive so you know i think the key issue here is that you look at bond yields bond yields are below 2 percent and so even if you get to to two and a half percent inflation these portfolio managers that hold these bond positions have a problem and so the demand to hedge commodity and heads that inflation risk through commodities is quite high i think thats part of what youre seeing pushing these markets higher right now is that hedging demand to deal with even beyond inflation creeping up into that 2 percent range jeff weve got to finish up with some numbers and play the numbers game seventy five in q3 on wti what are the big numbers youre looking for well i think in terms of looking at demand demand levels were much higher you know in fourth quarter and in the current environment than what we thought and were drawing inventories so the key issue is will that inventory draw began to slow down and we get in the third quarter and will we see a supply response but i have to emphasize that if youre saudi arabia right now youve already committed to keeping production off the market till april and supply is extremely inelastic in the nearterm which means you know the upside of risk until we start to see that supply response is quite high