Metals prices are coquetting with record levels, agricultural markets are trading at multi-year highs, and oil has staged an effective recovery.
The post-coronavirus rally is bullish for commodities. Nevertheless, what is less clear is whether we can name this a super-cycle. We continue more comfortable terming it a cyclical uplift.
Copper prices are in a staggering distance of their all-time highs made in 2011, while iron ore prices have scored record levels and binding ever closer towards $200/t. China has been core to the broad-based rally we have witnessed over the metals complex, with its post-coronavirus stimulus supporting infrastructure projects and in turn increasing demand for metals.
Nevertheless, it’s not just China where we understand recovery.
Global demand is getting a return as more economies reopen, and downstream sectors restock according to the epidemic-induced lockdowns.
US plans for extensive infrastructure spending have only contributed further support to markets, with investment designed to go towards electric vehicle infrastructure, power grids, as well as roads, and bridges.
Fundamentals for the majority of metals are helpful, with recovering demand serving to compress balance sheets. Visible inventories have commonly trended lower, including in China, where we have started a period of usually more robust demand.
Nevertheless, most metal markets have started this period of seasonal demand strength with below-average domestic inventories, which has served to underpin prices.
Supply problems have also become more of a matter for specific metal markets.
There were anxieties regarding oversupply uncertainties around copper from Chile, given the newest coronavirus-related restrictions, along with port strikes. Nevertheless, this does not seem to have had much influence on supply. Nonetheless, the steel and aluminum market has been a lot more fanfare around supply.
Regional government constraints within China for the aluminum and steel industry have increased concerns over tighter domestic supply. Clearly, with China, a critical consumer of metals, tightness or even noticed tightness has implications for the global market.
In addition to the practical short-term fundamentals, the longer-term narrative is also pretty bullish, with the greening of the global economy supposed to benefit metals’ demand.
Nevertheless, we believe we should see a downward correction for most metal prices in the medium term. If we practice copper as an example, the supply picture begins to develop as we move into the second half of this year, which should ease the tightness we see in the market. We notice the copper market turning to surplus in 2022.