Commodity prices fall as the great boom of 2021 faces its first big test

One of the biggest commodity booms in decades is the search for a new reason to increase potency.

Markets from copper to oil to corn have recently surged as monetary stimulus and the resumption of the pandemic squeezed supplies, fueling a debate over whether commodities are in a new supercycle. But the rally is now faltering amid concerns over faster inflation, hints by the US Federal Reserve of easing stimulus measures, and China’s warning of measures to ease price spikes.

Commodities slipped across the board on Wednesday amid these concerns, in a crazy day for markets which also saw huge swings in cryptocurrencies. Still, many of the reasons for the price hike – from a stronger global economy to a next wave of green spending – are still intact. In addition, a big change in monetary policy may be unlikely with economies in an uncertain recovery phase.

“The uptrend in commodities is certainly not over yet,” said Eric Liu, head of trading at Chinese copper trader ASK Resources Ltd. , commodity prices can hardly calm down. “

The tone was more stable on Thursday, with mixed base metals and grain markets edging up, although iron ore futures fell and Brent extended its declines. The oil market has been rocked by the prospect of a deal to end sanctions on Iranian exports, as the coronavirus continues to hurt Indian demand.

A Bloomberg gauge of spot commodity prices slipped 1.8% on Wednesday as the minutes from the Fed’s April meeting showed some policymakers were open to a debate on the cut in future meetings. In addition, China has issued a new warning over measures to curb price increases, saying more needs to be done to prevent rising costs from being passed on to consumers.

The stronger rhetoric is likely to weigh on materials ranging from copper to iron ore, which hit all-time highs this month amid rising demand. China, the main consumer of commodities, also bought huge amounts of crops, which helped push grain markets to multi-year highs, before the rally stalled.

The recent declines are “in part due to a reversal in macroeconomic sentiment around the world, as some of the fundamentals that contributed to the rise in asset prices have eased,” said Zhang Chenfeng, a researcher at the Chinese hedge fund on commodities Shanghai Chaos Investment.

As markets seek new pilots to resume rallying, energetic bulls may point to upcoming flight and driving seasons in the United States, as lockdowns ease, along with strong demand from Asia. . Crops need near perfect weather this summer in the United States and later in Brazil and Argentina for crops to meet global demand, so any bad weather could cause price spikes again.

Metals took advantage of a rush to replenish manufacturing supply chains and the prospect of years of green spending, which helped send copper to over $ 10,700 (all US figures) per tonne this month- this. Rising prices depend in part on a clearer picture of infrastructure spending and the duration of loose monetary policies.

Wall Street has released a bullish outlook. Citigroup Inc. sees copper surpass $ 12,000 in the coming months. Major traders Glencore Plc and Trafigura say prices could rise much more to boost supply enough to meet future demand for renewables and electric cars.

“I’m definitely in the camp for a healthy break” for commodities, said Daniel Hynes, strategist at Australia & New Zealand Banking Group. “Any disappointing data or headwinds was always going to lead to profit taking, and I think the industry as a whole still has advantages.”

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