Copper prices are heading toward a new all-time high of $10,000 as economic stimulus, vaccinations and climate change commitments drive the global economic recovery and bulls are entering to take profits.
Copper prices touched their highest level in 10 years on Tuesday, and precious metals markets such as aluminum and iron also gained support as the global economy grew, both rising to all-time highs. At the beginning of the 19th century, commodities were in a super cycle and prices rose sharply due to a surge in Chinese orders, and today, commodity prices are heading toward the highs of that time.
The Bloomberg Commodity Spot Index, one indicator of U.S. inflation expectations, climbed to its highest level since 2012, and U.S. Treasury yields rose across the board. On Tuesday, the 10-year break-even inflation rate topped 2.4 percent, reaching its highest level since April 2013. This indicator is often used to forecast the inflation rate over the next 10 years.
Just as copper demand is about to rise again, there is growing concern that copper producers, under technical and regulatory pressure, may have a hard time meeting rising demand.
In Chile, a group of port workers began protesting the government’s epidemic relief policy this week, and knowing that Chile is the largest copper producer, such strike action could threaten copper supplies in the short term. In the long run, Chile fears that higher mining costs will stifle investment and weaken the country’s competitiveness.
Analysts at BMO Capital Markets, including Colin Hamilton, said in an email.
“Commodity demand is up in the near term, but supply issues in raw materials and freight remain unresolved. Meanwhile, medium-term global growth momentum will continue to boost financial market interest in overall commodities.”
As large global economies announce stimulus plans and climate change commitments and the global economy gradually recovers from the shock of the epidemic, precious metals such as copper, a barometer of the global economy, are benefiting.
Copper prices on the London Metal Exchange (LME) ended up at $9,855.50 per ton on Tuesday, having hit a record high of $10,190 per ton in February 2011.
Aluminum prices declined after hitting a three-year high. Iron prices are soaring in both Asian and North American markets. The iron ore index rose to an all-time high of $193.85 per dry ton, according to S&P Global Platts data.
Despite most markets being bearish on commodities, Chinese demand for copper is likely to weaken in the near term. China is likely to ship more of the metal overseas as domestic demand falls short of expectations, with the country opening a so-called export arbitrage window to traders for the first time since last September, data from the Shanghai Gold Exchange showed.
Wenyu Yao, senior commodities strategist at ING, said.
“This situation may curb some speculative buying in London in the short term.”
However, on Wednesday morning, Goldman Sachs updated its forecast for commodity prices, expecting commodities to rise another 13.5% in the next six months. Goldman does not see China as the only major source of commodity demand growth over the next decade.
At the same time, Goldman Sachs believes people will travel much more, mainly due to the ongoing advance of vaccinations in Europe and elsewhere; seasonal transportation, manufacturing and construction activity will increase from now and accelerate in June; and some international travel restrictions will be eased in May.
Andy Wong, Senior Investment Manager in the International Multi-Asset Team at BlackRock Asset Management in Hong Kong, said.
“Inflation will continue to be a theme for investors. U.S. households have always had the most normal balance sheets, and with excess savings coupled with supply shortage issues, the oversupply problem will become more acute, (which will push up commodity prices).”
As for the rest of the market, gold was steady as traders await the outcome of the Federal Reserve resolution. The Fed has already hinted to investors that there will be no major changes to its language on inflation and interest rate expectations.
Palladium climbed to $3,000 an ounce as the market bet on a spike in demand from automakers, after which gains were tempered by an announcement by the largest miner, MMC Norilsk Nickel PJSC, to expand production.
In a report, analyst James Steel said.
“The high price of palladium could lead to significant outflows.”
And the relatively low price of platinum, a substitute for palladium in auto catalysts, should dampen some of the demand for palladium.