As investors put bets on the economic recovery, there’s a new craze taking over markets. Around the world, there’s a race to buy metals.
What’s happening? China’s benchmark iron ore futures surged an eye-popping 10% to a record high on Monday.
In China, the demand picture is exceptionally light, Warren Patterson, head of commodities strategy at ING. Outside China, the economic situation also seems more optimistic, putting pressure on iron ore supplies.
Additionally, there are solid grounds for factories in China to ramp up steel production, which demands iron ore, Patterson said. Geopolitical tensions within China and Australia, a principal supplier of raw materials, are also factors.
The explosion in iron ore prices comes from a more general metals boom. The cost of copper also scored an all-time high on Monday, while steel prices are approximately triple their 20-year average. The Bloomberg Commodity Spot Index, which is at its most distinguished level in a decade, has grown in 14 of the past 15 trading sessions.
Investor insight
Metals mania is great news for the stocks of mining companies, which are up distinctly. Rio Tinto (RIO) shares surged more than 3% in London on Monday, while Glencore’s (GLCNF)’s stock is 2% more distinguished.
But Patterson revealed concerns regarding just how long the buying spree can endure — mainly because an increasing number of professional investors are gathering.
We see a lot more risky and investor money coming into the iron ore market and the wider commodities complex, he stated.
Anxiety on Wall Street regarding inflation is forcing traders to consider hedges. And when there are concerns about rising prices, investors tend to prefer physical assets that can serve as a store of value — like metals.
The run-up may have gone too distant, though, producing a painful bubble that could be about to pop.
Patterson stated that he fights to see several metal prices supporting this move. We’re getting to a stage where prices are not adjusted with the fundamentals.
Speaking of higher prices
A cyberattack took the largest US fuel pipeline to close down Friday, and analysts bothered the disruption in a spike in gas prices. The Colonial Pipeline system spans longer than 5,500 miles and transports around 45% of all fuel consumed on the East Coast.
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