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The commodity market is booming. The price of iron ore hit a nine-year high on Friday (18). Like a global economic trend ball, “Dr. Copper” reached the highest price in seven years. Cereal prices recovered and cycle stocks rose. Investment banks are bullish on commodities to tackle the bull market for many years, but the European and US epidemic counterattack has caused these bets on “reflation” (reflation) transactions to face hidden concerns.
Strong demand from China comes as Brazilian miner Vale lowered its 2020 production forecast. The imbalance in supply and demand has pushed up the price of iron ore. According to Fastmarkets MB, the iron ore index of 62% imported to Qingdao port increased almost 4% on Friday to US $ 164.39 per ton, the highest price since October 2011, and the increase has expanded to 78% this year.
Dalian iron ore futures rewrote a record in intraday trading on Friday, rising more than 6% to RMB 1,076, which is unprecedented since the futures launch in 2013. Thermal coal, coke and media Coking are also approaching a nine-year high.
Commodity analysts predict that China’s steel demand will remain strong in the future, but the period of contraction in raw material supply will not be resolved and the iron ore shortage will continue until 2021.
Coincidentally, the price of copper surpassed the price of US $ 8,000 per ton on Friday (18), and the futures price of the London Metal Exchange (LME) rose 1.1% to US $ 8007 per ton, the highest since 2013. Other base metals, such as aluminum and zinc, increased overall. .
Copper prices are up 80% from the lowest point. At the same time, production costs have dropped. Copper miners, including Freeport-McMoRan (FCX-US) and Antofagasta, have seen their share prices rise.
The common factor behind the raw materials market is that vaccine research and development finally allowed the epidemic to see the light at the end of the tunnel. The United States stimulated consultations and China’s economic recovery boosted demand prospects.
Furthermore, the steady fall of the US dollar has helped drive up the prices of bulk commodities traded in the US. Under the Fed’s ultra-looser monetary policy bet, a short US dollar in 2021 has almost become a market consensus, which means that the commodity market is supported.
Goldman Sachs: Commodities show signs of “super cycle”
The commodity market is likely to continue rising. Jeff Currie, director of commodities at Goldman Sachs, said that commodities have “all the signs” of the supercycle and are entering a structural bull market similar to the one in the 1970s or early 2000s. Among metals, is more optimistic about copper’s performance in 2021.
Goldman Sachs predicts that the return on the S&P GSCI Commodity Index (S&P GSCI) over the next 12 months is expected to approach 30%. Long positions in silver, copper, gold, US natural gas and Brent crude oil are recommended.
Bank of America also believes that as the global economy gradually exits the severe period, almost all commodities will “moderately increase” in 2021.
However, Nikolaos Panigirtzoglou, an analyst at JPMorgan Chase, warned that the expectation that life would return to normal has caused the “reinflation” transaction to flourish. The city locks up the country and the performance of related assets in the coming months may disappoint investors.
Saxo Bank analyst Ole Hansen said that copper, like almost all other commodities, is rising in price, but as investors rush in, it is sure to see corrections, and the problem will only appear when.
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