International commodity prices continue to rise, causing investment banking institutions to call out the start of a “structural bull market”. The international rating agency Fitch stated in its latest outlook that the global economic recovery will continue to stimulate demand for industrial metals, while supply will remain limited, and industrial metal prices will continue to rise sharply in the short term. Some experts told the reporter that China, as the world’s largest consumer of bulk commodities, has begun to affect domestic manufacturing companies due to rising raw material prices, and should be cautious about the hype in the market.
Goldman Sachs shouts “bull market” views
The Bloomberg Commodity Spot Index, which tracks the price trends of 23 raw materials, rose last week to its highest level since March 2013. In the context of rising global commodity prices, the international investment bank Goldman Sachs threw to the market the judgment of a “new round of structural bull market” on March 2. Goldman Sachs analysis believes that in addition to cocoa and zinc, global commodities have recently experienced structural supply shortages.
The US “Market Watch” website stated that Goldman Sachs reported bullish commodity market performance based on the judgment that the US’s massive monetary stimulus plan is being passed by the government, and that the stimulus of the economy will form a stronger demand for commodities. The resulting inflation expectations have further stimulated the price increase of commodities as the best inflation hedge. At the same time, the two major global economies of China and the United States are competing around the supply chain, which has also helped the capital market pay attention to commodities.
Reuters quoted a Goldman Sachs report as saying that the forecast of returns on commodities in the next 12 months was raised to 15.5%, and that commodities are still the best inflation hedge. Domestic brokerage Guotai Junan also believes in its research report on March 3 that the commodity market may last until at least the end of 2021, and the year’s increase may reach 20%.
How long will the market last?
Bulk commodities mainly include edible and non-edible agricultural products, energy products and metal products. As industrial raw materials, these commodities are widely used in various fields, and their price fluctuations affect all aspects of industrial production and social life. Since the beginning of this century, global commodities have experienced three cycles of prosperity, starting in November 2001, December 2008 and January 2016 respectively. Soochow Securities analyst Tao Chuan analyzed that these three rounds of commodity booms are highly coincident with the recovery of global trade. As raw materials in the upstream of global production, the boom in global trade has promoted the demand for bulk raw materials brought about by rising commodity transactions. .
As an important raw material for white home appliances and other products, copper has always been an important non-ferrous metal commodity that has attracted much attention from the capital market. As of the beginning of March, the international copper price has risen above US$9,000/ton, a nine-year high. Reuters quoted Raul Jacobs, chief financial officer of Southern Copper Corporation, one of the world’s largest copper companies, as saying that the current copper ore price has already It is much higher than the incentive level of new mining projects, which will help ease the tight supply through expansion. However, the time required to build a mine may be twice as long as it used to be, which means that the market will not see new supply until eight to ten years later.
For other commodities, Fitch believes that iron ore is the biggest beneficiary in the short term due to tight market supply, and this situation will continue in the next few years. Fitch expects that the price of iron ore will be around US$125 in 2021, compared to US$90 previously expected. At the same time, benefiting from rising demand in China, zinc prices will also rise sharply.
However, the judgments of various institutions on the prospects of bulk commodities are not consistent. CICC believes that the recent market expectations of commodity price increases and trading enthusiasm have shown signs of overheating. CICC’s judgment logic is that the price increase of upstream raw materials will compress the output and profits of downstream economies, and ultimately counter the upstream commodity prices. There is a risk of a callback in commodity prices in the second half of the year.
Li Xunlei, vice chairman of the China Chief Economist Forum, said in an interview on March 3 that the global economy is still recovering due to the impact of the epidemic. There is no problem with the current supply of bulk commodities, and the rising prices are entirely due to After central banks issued excessive currencies, they became hot in the market. He believes that without the support of actual consumer demand, commodity prices rely solely on the capital speculation formed by quantitative easing, and the market is unsustainable.
How to influence the Chinese manufacturing industry
On March 3, the non-ferrous metals sector on the A-share market was enthusiastically sought after by funds, and 10 stocks including Guangsheng Nonferrous Metals and Minmetals Rare Earth had strong daily limits soon after the opening. However, the home appliance sector bucked the trend and fell and was the bottom of all sectors.
Due to the continuous rise of raw materials, since the end of last year, many domestic home appliance companies have raised their product prices. Midea Group has decided to increase the price system of refrigerator products by 10%-15% from March 1. According to calculations, raw material costs accounted for more than 50% of white goods products, and home appliance manufacturers were ultimately caught in the dilemma of controlling costs and shrinking sales caused by price increases due to this round of rising raw materials.
“You must be cautious about the argument of the’bulk market in bulk commodities.” Li Xunlei analyzed that the service industry in the US economy accounts for more than 80%, and China is the world’s largest importer of bulk commodities, and the increase in bulk commodity prices has a detrimental effect on China. Li Xunlei said that the increase in the price of upstream raw materials will not only weaken China’s status as a global manufacturing country, but will also be transmitted to the CPI to increase people’s living expenses. “Although China is the world’s largest importer of commodities, the United States still has a lot of pricing power. We still have to stabilize our expectations and not irrationally speculate.”