Commodity prices keep rising, the great age of inflation is coming! Due to China’s huge demand for steel, soaring prices for iron ore, Singapore iron ore futures on Monday had surged more than 10% to a record high of more than 226 U.S. dollars per ton, has risen nearly 40% this year; often seen as an indicator of the health of the global economy, copper prices also rose, London copper futures rose up to 3.2% to 10,747.5 U.S. dollars per ton, the same record high. In view of the copper and steel use is very wide, including home appliances, cars and houses, the price of runaway soaring foreshadowing inflation will heat up rapidly.
For industrial metals prices rose sharply on Monday, market participants failed to find the exact trigger point, continues to be attributed to a number of ongoing market trends, including the global economic recovery, but central banks can still be expected to maintain the water; expected China to tighten environmental pollution regulations, will promote the green energy transition is seen as the key to copper demand, but also triggered by steel producers may be launched in the new regulations before the pre-buying iron ore speculation. Vivek Dhar, a commodity analyst at Commonwealth Bank of Australia, said the iron ore market is so hot that supply is still unable to meet current demand, and perhaps the biggest question facing China in 2021 is when steel demand will cool down.
In fact, mainland steel prices rose sharply, with steel billet raising prices 3 times in 1 day last weekend, up RMB 150 per tonne in a single day, and hot coils up RMB 250 per tonne per day, which used to be oversupplied. Dalian Commodity Exchange warned on Monday that recent commodity prices are volatile and investors should remain rational. According to Luo Tiejun, vice president of the China Iron and Steel Industry Association, the main reason for the high iron ore prices is that the supply is highly concentrated, the dominant power is in the hands of the sellers, and the market expectation and speculation component is large. It is worth noting that Indian steel leader JSW has cut production by nearly 10% due to the epidemic, and the epidemic is expected to last until September.
At the same time, Goldman Sachs and Bank of America are optimistic that copper prices will continue to benefit from the economic recovery, as well as renewable energy and electric vehicle equipment-related investment increases. Goldman Sachs expects copper prices to rise to $11,000 within 12 months, and further to $14,000 in 2024. The bank described the commodity market in the “Goldilocks scenario”, that is, the sweet good times, the overall raw materials market in the next 12 months will further improve returns. Bank of America is also expected to see copper prices rise to $20,000 once supply is greatly reduced and demand rises sharply.
Industrial metals long-term outlook is looking good, attracting investors to enter the field, listed in Hong Kong resources stocks continue to be speculated on, Jiangxi Copper (00358) Monday closed up 12.34%, Anshan Iron and Steel (00347) rose 6.67%, Aluminum Corporation of China (02600) soared 10.1%. Not only that, Australian miners Rio Tinto and BHP Billiton share prices rose to record highs or close to record highs, the inflow of mining-related funds also began to increase. In the six months to the end of April, BlackRock World Mining Fund assets under management surged by $3.1 billion to a six-year high of $7.5 billion. Nevertheless, the fund size is still well below the peak of $18 billion in 2011, implying that inflows may further increase.
Compared to the precious metals market, copper-related exchange-traded funds (ETFs) used to receive less attention, and now the situation has shifted rapidly. The WisdonTree Copper ETF, the world’s largest copper-related ETF, has seen net inflows soar by $366 million so far this year, with assets under management soaring to a record $841 million. Another commodity index ETF, which has investors betting on a commodity boom, has also seen a surge in inflows in recent months. Citi estimates that assets under management in such funds rose to a near 10-year high of $230 billion in March. The bank’s emerging market inflation surprise index soared to the highest since 2008 last month, implying that the market may still underestimate the explosive power of price surges.
In addition to industrial metals, the largest U.S. oil pipeline operator Colonial Pipeline Company suffered a cyber attack, large oil transportation pipeline did not resume normal operations, pushing up oil prices. New York futures oil rose 1.3% on Monday to a high of $65.75 per barrel; Brent futures oil rose 1.33% to a high of $69.19. In precious metals, spot gold rose 0.43% to a high of $1,839.17 per ounce on Monday.
The cost of automobiles is rising and everything is increasing in power
Copper, steel and aluminum are the necessary raw materials for the production of cars, as the prices of these metals continue to climb, so that the already troubled by the lack of core car manufacturers face greater pressure, as the “top of the consumer” car prices are likely to rise, aggravating the overall inflation problem.
JPMorgan Chase pointed out that automotive raw materials in the year to the end of March has risen 83%, these raw materials generally account for about 10% of the cost of car production, meaning that a car priced at $ 40,000, may need to raise prices by 8.3% or more than $ 3,000, to offset the rise in raw material prices.
In fact, car manufacturers are usually difficult to pass on the cost increases to consumers, but the current surge in overall demand, many consumers have the purchasing power to avoid public transportation, as well as the global shortage of core production constraints, to provide manufacturers with room to raise prices. In the United States, in view of the lack of supply of cars, more forced car rental companies need to turn to the auction to buy used cars, rather than buying new cars.
In addition, just as the auto industry is pushing for an energy transition to meet higher emissions standards, rising copper prices are adding to cost pressures, as information shows that electric vehicles use nearly 3.5 times more copper than conventional vehicles.
The sharp rise in costs may also prompt car manufacturers to seek alternative raw materials for electric vehicle batteries. Most of the current electric car batteries mixed use of lithium, cobalt and nickel, and these raw material prices over the past 12 months at least rose 47%. Including Ford and BMW earlier this month to the battery startup Solid Power invested $ 130 million, the startup is developing batteries that do not require these metals, which is expected to make the cost of batteries plummet by 90%.
Nicolas Peter, BMW’s finance director, expects higher commodity prices to hit the company by up to 1 billion euros for the year, with particular mention of rhodium, steel and palladium as particularly worrisome prospects for the coming months. In the long run, BMW is committed to reducing the impact of price hikes on key raw materials and hopes to produce cars made with new technologies from 2025 onwards, where raw materials such as steel, aluminum and plastic can be recycled for use in the manufacture of new cars.
The car factory Stellantis, which is the result of a merger between FTI Gashner and Peugeot Citroen, said that it needs to get back some of the rising costs, while the current market environment is positive. Morgan Stanley also said that consumers are almost waiting in line for new cars to be shipped, and there is no better time to pass on costs than this, because the car market is now “in the hands of the sellers”.
Last century’s battle for oil, future battle for water
The world has entered the “inflation era”, which means that the wallet is shrinking, but has it ever occurred to you that “water” is also one of the things that are rising!
In fact, water is called “blue gold” (Blue Gold), more precious than oil. Although about 70% of the earth’s surface is water, less than 1% of fresh water is directly available for human consumption. Due to population growth, socio-economic development and the shortage of fresh water resources, more than 2.2 billion people are currently facing water shortage problems. The water crisis will not only cause inflation, but may also threaten food security, lead to migration, financial turmoil, and even war.
Water has become an important “commodity”, the Chicago Mercantile Exchange last December launched for the first time with the “California Water Index” linked futures contracts, representing “water” like crude oil, gold and other commodities Commodities, like crude oil, gold and other commodities, can be traded through the futures hedge against rising water prices. In this regard, the United Nations officials are concerned that the water shortage crisis will be further worsened by speculation, and even lead to a food crisis.
Water shortage also touches geopolitics. The battlefield of the U.S.-China game has extended from trade and technology to the Mekong River basin in Southeast Asia. The Mekong River flows through Thailand, Cambodia, Vietnam and other places, and China has been controversial in building many dams in the upper Mekong River to control the flow of the river. The U.S. launched the Mekong U.S. Partnership Program in September last year, providing at least $153 million to Mekong Basin countries for regional cooperation. Some scholars believe that the country most likely to be “depressed” by the lack of water is India, as the water crisis claims the lives of about 200,000 people in India every year, and recently China intends to build hydroelectric power plants in the Yarlung Tsangpo River, triggering concern in India and Bangladesh.
In the face of increasingly precious water resources, how to efficiently use the focus, which must be mentioned 70% of the land is the desert of Israel, the local desalination technology, up to 80% of the water are taken from desalinated seawater, sewage recycling reuse also reached 85%. The country now has more than 250 water technology companies, earning more than $ 2 billion a year, the real realization of “water for money”. Located in Asia, Singapore also through desalination and recycling “new water” (recycled water) technology, the goal of 2060 years ago, desalinated seawater accounted for 30% of local water consumption, and new water to meet 55% of local water demand, generally solve the water shortage dilemma, but also investment opportunities.
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