Bloomberg
Big commodity boom of 2021 hits break amid a major sell-off
(Bloomberg) – One of the biggest commodity booms in decades is probably not over yet – it’s just taking a breather. Plants, oil and metals are facing weekly losses after a few nervous days for markets ranging from commodities to stocks and cryptocurrencies. Investors were shocked by inflation concerns, speculation that the US Federal Reserve might weaken stimulus, and further warnings from China about price spikes. But many of the reasons for this year’s price hike and the debate about a new super cycle persist. “The commodity bull run is definitely not over yet,” said Eric Liu, trading manager of the Chinese copper trader ASK Resources Ltd. “Every country has to contend with rising inflation, but as long as it doesn’t really tighten monetary and fiscal policy.” The raw material prices can hardly cool down. “A rebound in the world’s largest economies as Covid-19 vaccination is rolled out is fueling demand for metals, food and energy when supplies are still limited, and tightening markets for goods from oil to wood. This trend could accelerate in the US and Europe over the next few months as more people go out, drive, book flights and gather for summer barbecues. And there is China, which has increased soybean and corn imports to feed its fast-growing pig herd. Long-term prospects of aggressive infrastructure spending and a faster transition to electric vehicles and batteries have also helped boost commodity prices. The market tone was more stable on Thursday. Copper futures rebounded from the previous day’s slump on expectations that demand will remain stable despite possible rejuvenation from the Federal Reserve and China’s increased efforts to lower jawbone prices. Corn futures also rose in Chicago, aided by China’s ongoing spending spree. In contrast, crude oil futures extended losses on the prospect of an agreement to end sanctions on Iranian exports while the coronavirus continued to weigh on Indian demand. The Bloomberg Commodity Spot Index, which tracks 23 commodities, fell 1.8% on Wednesday by minutes of the April Fed meeting showed that some policy makers were open to debate on tapering future meetings. In addition, China again warned of measures to contain rising prices, saying more must be done to prevent rising costs from being passed on to consumers. The increased rhetoric carries the risk of straining materials from copper to iron ore, which hit record highs this month in response to rising demand. China, the largest consumer of commodities, has also purchased large quantities of grain, which helped bring grain markets to multi-year highs before the rally stalled. The recent declines are “partly due to a reversal in macroeconomic sentiment in the world, as some of the fundamental factors that helped boost asset prices have subsided,” said Zhang Chenfeng, a researcher at China’s commodity industry. Hedge Fund Shanghai Chaos Investment. Back to Record Bloomberg Commodities Indicator could still beat 2011 record highs for the next several months as the US economy continues to open, according to Bob Yawger, head of futures at Mizuho Securities. “People want out and live and that will give the market a big bid,” he said in an interview, adding a weaker one. The dollar could also be a catalyst for higher commodity prices as most commodities are valued in the greenback. Western Texas Intermediate crude oil could rise to $ 70 a barrel in the next few months “as everyone drives as many miles as possible.” With markets looking for new drivers to resume the rally, energy bulls can point to upcoming U.S. driving and flying seasons as lockdowns become easier, as well as solid demand from Asia. Plants need near-perfect weather this summer in the US and later in Brazil and Argentina for crops to meet global demand. Bad weather can therefore lead to price spikes. Metals have benefited from the rush to replenish production supply chains and the prospect of years of green spending that helped drive economic copper above $ 10,700 a ton earlier this month. Whether or not prices rise in part depends on a clearer picture of infrastructure spending and how long the loose monetary policy lasts. Wall Street has published bullish outlook. Citigroup Inc. predicts copper will rise above $ 12,000 in the coming months, and major traders Glencore Plc and Trafigura said prices could go much higher to meet supply to meet future demand for to satisfy renewable energies and electric cars. “I’m sure I’m having a healthy break in this being’s camp,” said Daniel Hynes, strategist at Australia & New Zealand Banking Group. “Any disappointing data or headwinds have always been profit-taking and I think the whole sector still has some advantages.” (Updates with commodity movements in paragraph 2.) More stories like this one are available on bloomberg.com. Subscribe Now Stay up to date with the most trusted business news source. © 2021 Bloomberg LP
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