NEW YORK: Iron ore futures surged more than 10% and copper jumped to a record amid increasing bets they’ll be among the biggest winners from a commodities boom that’s stoking concerns about inflation around the world.
While market participants struggled to pinpoint a trigger for yesterday’s gains in iron ore, they cited several ongoing trends including optimism that central banks will retain supportive policies even as the global economy recovers.
Expectations China will tighten environmental rules have added to the bull case for copper – seen as vital to the green energy transition – and fuelled speculation that steelmakers may front-load iron ore purchases before new curbs kick in.
The gains add to a more than year-long surge in raw-materials prices that’s shifted into overdrive in recent weeks, with the Bloomberg Commodity Spot Index rising for 14 of the past 15 days to the highest level in almost a decade.
A “Goldilocks scenario” may be forming as strengthening global growth combines with restrained wage pressures and a dovish Federal Reserve, Goldman Sachs Group Inc commodities analysts said in a May 7 report, the same day weak US jobs figures added to the case for more stimulus.
The risk for bulls – and anyone betting on buoyant returns from stocks and bonds – is that the surge in raw materials feeds through to broader measures of inflation and eventually forces central banks to tighten.
The iron ore sector “is very, very hot, ” Vivek Dhar, commodities analyst at Commonwealth Bank of Australia, said in Bloomberg Television interview.
“Supply is still not able to meet that strong demand.”
Iron ore futures in Singapore jumped to a record above US$226 (RM928) a tonne, extending this year’s gain to about 40%. Contracts in Dalian climbed by the daily limit when the market opened.
Raw materials producers led gains in the MSCI Asia-Pacific Index of regional shares, while Australia’s benchmark equity index was set to close at an all-time high. Iron ore is the country’s biggest export earner.
Copper, often viewed as a barometer of the global economy’s health, rose as much as 3.2% to a record US$10,747.50 (RM44,127) a tonne on the London Metal Exchange.
It traded at US$10,685 (RM43,872) in London. Aluminum climbed 1.5%, while nickel declined.
“There’s still quite a lot of room to go, ” Evy Hambro, global head of thematic investing at BlackRock Inc, said on Bloomberg Television.
There were fresh jitters on the supply side as China’s major copper smelters vowed to reduce purchases of mined concentrate this year as the country seeks to curb carbon emissions.
While that could ease strains on mine supply, the smelters will need to boost scrap purchases to avoid a slump in output of refined metal.
“It’s notable that the smelters don’t imply a cut to output, ” Morgan Stanley analysts Susan Bates and Marius van Straaten said in an emailed note.
Copper remains a favourite long wager in the commodities complex, as “massive green demand is set to clash with a completely unprepared supply side, ” Goldman Sachs analysts led by Sabine Schels wrote.
They said the metal may rise to US$11,000 (RM45,000) a tonne in 12 months and to US$14,000 (RM57,480) in 2024. — Bloomberg > See also page 4