Commodities hit their highest level in nearly a decade as rebound in the world’s largest economies fuels demand for metals, food and energy, while poor weather is hurting crops and transport bottlenecks limit supply.
The Bloomberg Commodity Spot Index, which tracks the prices of 23 commodities, rose 0.8% on Tuesday to reach its highest since 2011. The index has climbed more than 70% since reaching its highest low level in four years in March of last year.
As some major economies emerge from the pandemic, metals are rising as manufacturing picks up, and motorists’ return to the roads is pushing up energy prices. Meanwhile, crops like corn, wheat and sugar have increased as drought hurts plants in Brazil, the United States and Europe, while China gobbles up supplies. Hedge funds increased their bullish bets on commodities, signaling a new inflationary bet.
Soaring commodity costs are pushing up the prices of everything from houses and food to toilet paper and diapers, and stoking inflation fears around the world. US Treasury Secretary Janet Yellen, former Chairman of the Federal Reserve, said in a television interview on Tuesday that interest rates may have to rise to prevent the economy from “overheating” – although she later said that she did not predict the rates. increases and did not anticipate a constantly higher surge in inflation.
“There is certainly optimism for an improving economic outlook leading to an acceleration in demand,” said Greg Sharenow, portfolio manager at Pacific Investment Management Co., in an interview. Futures curves for several commodities indicate tight supplies, he added.
The United States and China are recovering quickly from the pandemic, driving demand for additional cars, electronics and infrastructure. Ford Motor Co. expects an impact of $ 2.5 billion in raw material costs in the last three quarters of the year, from steel, aluminum and precious metals.
President Joe Biden’s $ 2.25 trillion infrastructure package and bets that more aggressive climate promises will accelerate the proliferation of solar panels, wind turbines and electric vehicles are also leading to gains and raising fears of a shortage of metals.
Commodities could jump a further 13.5% in six months, with oil hitting $ 80 a barrel and copper hitting $ 11,000 a tonne, Goldman Sachs Group Inc. said on April 28 in a report. Crude is expected to see the biggest increase in demand over the next six months, with the rollout of the vaccination boosting mobility, according to Goldman.
But if commodities are hot, it doesn’t necessarily have to be the start of another supercycle – an extended period in which prices are well above their long-term trend.
The magnitude of demand growth over the next few years is not expected to be the same as when China’s rapid industrialization led to the last supercycle of the first decade of the century, and sufficient spare capacity is expected to limit demand. energy prices, said Stephen Hare of Oxford Economic. a report in April.
Recently record-breaking iron ore, analysts at JPMorgan Chase & Co., could cause the world to turn towards services from goods, which will reduce the demand for metals to make electronics and devices. kitchen appliances. down about 20% from current levels by the end of the year, and copper, which last month topped $ 10,000 per metric ton, will drop to about $ 8,250 in the fourth quarter, according to Capital Economics.
Fluctuations in commodity prices have a significant impact on the cost of living as they can include the price of fuels, electricity, food and construction projects. They also help shape the terms of trade, exchange rates, and ultimately the politics of commodity-dependent countries like Russia, Brazil and Chile.
“The surge in commodity prices over the past year now ensures higher commodity price inflation this summer,” said IHS Markit Ltd. in an April 29 report. the United States will hit rates not seen in nearly ten years. ”
– With the help of Gabrielle Coppola.