Brent crude from the North Sea, a benchmark for the international crude oil market, was traded on the 13th at the London ICE Futures Exchange for $56.58 a barrel. The price is up 1.65% from the previous day. An employee of an economic information website is looking at a graph of international oil prices. Reporter Shin Kyung-hoon [email protected]
International oil prices, which had repeatedly fallen in the aftermath of the spread of the novel coronavirus infection (Corona 19), rose to an all-time high after 12 months. In addition to oil prices, the prices of major raw materials such as copper, iron ore, silver, and corn are struggling. There is also a prospect that it will enter the’raw materials supercycle’ over the next 10 years.
As of 4 p.m. on the 13th, Western Texas Crude Oil (WTI) for February delivery on the New York Commercial Exchange (NYMEX) was traded at $53.78 per barrel, up 1.07%. At the same time, on the ICE futures exchange in London, UK, Brent for March rose 1.17% to $57.24 per barrel. It is the highest after January 24 ($54.19) and February 21 ($57.94) last year before it entered the sphere of full-fledged Corona 19 influence.
It wasn’t just oil prices that recorded the highest price record. Copper traded on the New York Merchandise Exchange (COMEX) on the 7th at $3.6960 per pound (0.45kg), the highest price since January 2013. Iron ore (based on Chinese import prices) also soared to $169.32 per ton on the 8th. Compared to the beginning of this year, it surged by about 111%, the highest since March 2013.
It is analyzed that the Corona 19 vaccine and stimulus measures from countries around the world such as the United States are raising raw material prices while raising expectations for an economic recovery. The shortage of raw materials supply and the fall in the dollar value due to the re-proliferation of Corona 19 are also pointed as the main reasons for the price increase.
Jeff Curry, head of research at Goldman Sachs’ commodity sector, said, “The Corona 19 incident has become a catalyst for causing a supercycle in the commodity market. The global economic environment will support the rise in commodity prices over the next decade.”
Oil price of 50 yen, copper and iron ore’the best’ in 8 years… Higher than before the coronavirus
Raw material prices are super strong at once… “Entering a 10-year bull market”
As the prices of major raw materials, such as iron ore, copper, and aluminum, all hit the highest or exceeded the previous high, the claim that raw materials have entered the’supercycle’ is gaining strength. As the novel coronavirus infectious disease (Corona 19) vaccine has begun to spread, and the possibility of economic recovery increases as the Chinese manufacturing industry is booming, the product market is heating up. In addition, the US’ Blue Wave (Democratic Party’s dominance of the Senate and House) is expected to expand infrastructure investment, and concerns about inflation are fueling price hikes. The yield of various related products and funds also surged. Goldman Sachs, a global investment bank (IB), diagnosed it as’the beginning of a structural bull market,’ saying, “The raw material rally will continue for a long time over the next 10 years.”
Boiling raw material market
There are numerous ETFs related to commodities that have yielded around 50% in the last six months on the New York Stock Exchange. The’iShares MSCI Global Metals & Miners’ ETF, which invests in global mining companies, jumped 54% over the past six months. The’Global X Copper Mining Company’ ETF, which invests in copper mining companies, also rose 57%. The US copper ETF (CPER), which invests in copper futures prices, also rose more than 20% over the same period. Van Eck’s rare earth ETF (REMX) soared 85%.
The reason why these ETFs recorded high returns is that raw material prices, which began to rise in August of last year, have been rallying for more than six months. The price of copper, a representative economically sensitive raw material, has risen more than 70% from the low in March last year, moving around 8,000 dollars per ton of spot this year. It has been eight years since the price of copper has exceeded $8,000 per ton.
Iron ore prices were also close to all-time highs. According to the Ministry of Trade, Industry and Energy, the price of iron ore based on imports from Qingdao Port in China reaches 172 dollars per ton. In February and March of last year, it fell to the early 80s and more than doubled in 10 months. Aluminum, tin, and zinc are also the highest or have exceeded all highs.
In addition to industrial metals, prices of corn and soybeans, which have been falling since 2012, also rebounded. I have jumped 40-50% over the past 6 months. Prices surged as China imported large amounts of agricultural products in response to an abnormal climate in major grain areas such as South America and Russia.
International oil prices have recovered before the outbreak of Corona 19, surpassing $50 per barrel for Western Texas Crude Oil (WTI), Brent Oil, and Dubai Oil. Due to the impact of production cuts by OPEC+ (the Organization of Oil Exporting Countries and the coalition of 10 major oil producing countries), WTI prices rose more than 10% this year alone to reach $53 per barrel.
Expectations of economic recovery and concerns about inflation
The reasons for the rise in commodity prices are complex. Kang Song-cheol, a researcher at Shinhan Financial Investment, said, “It is a good environment for raw material prices to rise due to the spread of vaccines, anticipation of economic recovery, optimistic outlook for the Chinese manufacturing industry, and the realization of the blue wave.” “The inflation pressure has also increased.”
Global funds are showing a risk appetite due to the weak dollar, and in the United States, as Joe Biden’s next administration’s expectation of expanding infrastructure investment is growing, funds are being focused on raw materials. Since commodities are mainly traded in dollars, the weak dollar is also a factor that fuels commodity prices. As concerns over inflation continue to rise due to the continued low interest rate, the investment value of raw materials as a hedging tool is also increasing.
Supercycle returns in 10 years
On Wall Street, the argument that it has entered the’supercycle’ is gaining convincing, saying that the raw material rally, which lasted for 10 years since the early 2000s, has returned again.
Raw materials betting is also the highest in 10 years. According to Bloomberg, the net-long position of futures and options funds investing in 19 commodities excluding aluminum, zinc, and nickel was 2.3 million as of the 5th, the highest since January 2011. The fact that investors took a net long position means that there are more buy contracts in response to expectations of rising prices than sells based on downward forecasts.
“We have entered a long-term and structural bull market,” said Goldman Sachs analyst Jeff Curry. “These bull markets will support prices over the next decade.” Previously, the commodity market began to rally in the 2000s thanks to China’s rapid growth, but turned to a downtrend in 2011 when the Chinese growth rate began to decline. It is an analysis that demand for raw materials has risen as the Chinese manufacturing industry has recently recovered.
Reporter Seol Ji-yeon/Park Sang-yong [email protected]