16 May 2021
What this chart shows The chart shows the price of iron ore and copper (in US dollars per tonne) since the beginning of 2017. Last week, copper reached an all-time high, surpassing its previous high from 2011, and doubling from its lows in March last year. Iron ore prices have also soared in recent months, as have a number of other commodities, amid rising expectations for a strong global economic recovery. Iron ore is used to produce steel which of course is a widely used material in construction and automotive manufacturing, both very cyclical sectors. Likewise, copper is considered one of the most important industrial metals with widespread applications, including electric vehicles. Why this chart is relevant There are both demand and supply side reasons for the sharp rallies in commodity prices we have witnessed recently. The demand side is clearly associated with a fast global economic recovery boosting demand for raw materials, especially in China, the world’s largest consumer. China’s imports have risen as its demand for raw materials has increased. Data released last week showed imports were up 43% in April vs one year ago, though there was a lower base last year as the pandemic hit global trade. The importance of copper in the production of electric vehicles could act as a longer term tailwind for the metal too. On the supply side, disruptions in supply chains and low inventories in certain key raw materials have also strengthened the rally. The latency in bringing new mines into production also exacerbates the short-term supply-demand dynamics, as you can’t simply turn on a new supply of copper. These rises have certainly fuelled higher inflation expectations, one of the key market trends of recent months.
Source: Bloomberg, Momentum Global Investment Management
Research Date: May 2021
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