If You're Trying To Hedge Inflation, Phosphate Is A Commodity To Keep Your Eye On

The United States, according to the traditional definition, is in a recession. 

As people grapple with the ramifications of the recession, they are looking to hedge against rising inflation. An inflation hedge is typically an investment intended to protect an investor against any significant decrease in the purchasing power of money. 

Despite the Federal Reserve’s best efforts to bring down prices, reports are showing that inflation continues to be worse than anticipated, and it is expected to broaden in the coming months. 

With no end in sight to inflation in the U.S., investors are looking for alternative ways to protect their investments and mitigate the potential impact on their portfolios. 

Ways To Hedge Against Inflation 

When purchasing power decreases and companies experience lower profits, it becomes even more crucial to protect your money. While investing in the stock market can be a powerful way to hedge inflation, in a struggling economy, diversifying your portfolio can be one of the strongest tools to protect yourself. 

Portfolio diversification lowers your level of risk. If or when a company fails, investment in other companies helps to offset losses. Another critical part of portfolio diversification is investing in alternative investments beyond traditional stocks.

Commodities, real estate and precious metals are popular investment alternatives. These alternatives can be more independent as they are considered real assets, and they can retain value when currency is devalued. 

When looking at investing in commodities, it is important to look at what raw materials are needed for growing industries. When an industry is forecasted to have high demand for a certain commodity, it can be expected that the value of the commodity will remain stable even during a recession. 

Phosphate Is A Commodity Worth Looking At 

Phosphate is a commodity that is experiencing increased demand. The expected growth is largely driven by two industries: electric vehicles (EVs) and agriculture. 

EVs have long banked on lithium-ion batteries, but in recent years, North American and European carmakers are following China’s lead and developing lithium iron phosphate batteries (LFPs). LFPs are safer, cost less than alternatives and last longer. Compared to their nickel and cobalt-based lithium-ion predecessors, the materials used are more stable and easier to mine. Simply put, phosphate is a better alternative to nickel and cobalt needed for non-phosphate lithium-ion batteries, a factor that is driving demand, especially in light of supply chain concerns due to the ongoing tensions in Asia and Europe. 

Phosphate is also an essential component of fertilizers and is used in a variety of food and industrial products. As the agriculture sector increases globally to meet demand, the need for phosphate will also increase. 

Arianne Phosphate Inc. DRRSF is one of the promising phosphate mining companies that can respond to the growing demand for phosphate. The company’s Lac à Paul project in Quebec is a response to a growing global demand for phosphate, which is increasing by 2% to 3% each year. As electric vehicles see increased adoption, demand for lithium iron phosphate batteries could rise if the trend continues, in turn driving demand for phosphate.

The Canadian company also adheres to stricter environmental, social and corporate standards, aligning with North American and European agendas, in contrast to Chinese suppliers who currently supply much of the demand. As European and North American companies pivot away from their overdependence on Chinese suppliers, Arianne Phosphate seems to be well-positioned to fill the supply gap. 

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Featured photo by Tomas Eidsvold on Unsplash