With many countries fighting with the worsening epidemic as the number of coronavirus cases proceeds to climb over the globe. A commodity boom has developed amid the chaos.
The causes for this rally are disturbances in the supply chains worldwide and pent-up demand for some commodities. This is according to speaks OCBC Bank’s economist Howie Lee.
China’s demand for raw materials proceeds to look robust. It is importing large amounts of copper and iron ore in particular. The US economy is also improving faster than awaited, and consumers are pushing petrol prices higher.
Even if supply rises, the consumers are likely to catch the marginal gain. Prices will prevail raised as demand seems to outpace supply at this stage considerably, he says.
It has continued to maintain that commodities are experiencing a supercycle. The stagnancy witnessed in March, in hindsight, was just a stop in the commodity rally. This now seems to have returned.
As stated in a recent Bloomberg news report, inflation perils are increasing, with supply shortages multiplying.
Hints of inflation are pulling up. A mounting number of consumer-facing companies have been hinting in recent days that supply deficits and logistical logjams may force them to increase prices.
Tight inventories of materials as modified as semiconductors, steel, lumber, and cotton show up in survey data. This is due to producers in Europe and the US are flagging record supplies and higher input prices. All this in a struggle to replace stockpiles and keep up with stimulating consumer demand, Bloomberg stated.
Saxo Bank, head of the commodity strategy Ole Sloth Hansen, reports that with the Bloomberg Commodity Spot Index already up by higher than 60% over the past year, no doubt increasing prices are being perceived worldwide. The Bloomberg Commodity Index follows the costs of 23 raw materials. Last Wednesday, it advanced to its highest level after 2011 at 92.22 points.
The prospect of commodity prices proceeding to increase over the coming years, thereby creating a so-called supercycle, will depend on producers’ capacity to meet expanding demand, states Hansen.
The agriculture sector, which tends to have a comparatively short cycle, where high prices in one year drive higher production in the following, is the sector most prone to respond, weather allowing. Many of which will be required for the green transformation are various stories, with stable supply striving to meet increasing demand.