Commodities boom spreads beyond energy and metals
Commodity prices are soaring – oil, gas, copper and a whole host of metals has seen prices take off. But price rises are spreading to soft commodities too.
“There has rarely been a better time to add commodities to a portfolio as a hedge against inflation, geopolitical risks and potentially hostile market environments,” says Jeffrey Currie of Goldman Sachs. The S&P GSCI index, which tracks a basket of 24 major commodities, has risen 35% over the past year and analysts see more gains ahead.
Bulls such as Goldman point to “extremely tight inventories, underinvestment across the commodity sector and slow-responding supply”, says Alex Gluyas in the Australian Financial Review. The rise of environmental, social and governance (ESG) investing means that while “capital has never been cheaper due to low interest rates, it has never been more expensive to build infrastructure and equipment such as mines, steel mills”, or drill for an oil and gas well.
The shortages are broad based. “Copper stocks at major commodity exchanges sit at just over 400,000 tonnes, representing less than a week of global consumption,” say Neil Hume and Emiko Terazono in the Financial Times. Citigroup analysts think demand for lithium, which is used in electric car batteries, will exceed supply by 6% in 2022. It’s not just metals either. Stockpiles of arabica coffee, “the higher-quality bean loved by espresso aficionados”, are at their lowest level in 22 years. US Soybean prices are up 18% this year already. Wheat prices have also risen on fears that major exporters Russia and Ukraine are about to descend into war.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Aluminium takes flight
Then there’s aluminium, says Laurence Girard in Le Monde. The metal is used in everything “from coffee capsules to cans to aeroplane cabins”. It also plays a key role in the infrastructure needed to decarbonise the economy. Last week it hit a 13-year high on the London Metal Exchange at $3,236 a tonne. The metal is up 16% already this year and not far off its all-time high of $3,380 a tonne.
The squeeze is a consequence of soaring energy prices that have seen European and Chinese smelters cut production. “On average, producing a ton of aluminium uses the same electricity as an average US family consumes in [a] year,” says Javier Blas on Bloomberg. Aluminium’s extensive presence in our daily lives means that the price rally will be another source of inflation across the economy.
The 67 million tonne a year market ran a deficit of more than one million tonnes last year. That should continue. China accounts for “nearly 58%” of the market, but the industry is under pressure to cut pollution and energy usage. High electricity prices elsewhere mean there are few producers ready to step in, while the electrification of ever more of the economy means a growing number of products contain the metal. Hence Goldman predicts prices could hit $4,000 a tonne within the next 12 months.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
8 of the best properties for sale with indoor swimming pools
The best properties for sale with indoor swimming pools – from an award-winning contemporary house in East Sussex, to a converted barn in Hampshire
By Natasha Langan Published
-
Chinese stocks slump on first trading day of 2025
Chinese stocks suffered in the new year from their worst first day of trading since 2016, despite a state stimulus package
By Alex Rankine Published
-
Why Wise could be worth a lot more than its share price implies
Foreign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
By Jamie Ward Published
-
Can The Gym Group pump up your portfolio?
Gym Group was one of the best UK small-cap stocks in 2024 and will beef up your profits this New Year
By Rupert Hargreaves Published
-
MoneyWeek's five predictions for investors in 2025
MoneyWeek's City columnist gazes into his crystal ball and sees five unexpected events in store for investors in 2025
By Matthew Lynn Published
-
How to invest in battery metals
Despite recent weakness, battery metals that are powering electric vehicles are worth a look
By David J. Stevenson Published
-
How buy-and-build stocks deliver strong returns
Bunzl, DCC and Diploma became successful through buy-and-build – rolling up dozens of unglamorous businesses. How does it work and what makes it successful?
By Jamie Ward Published
-
Singapore Technologies Engineering shows strong growth
Singapore Technologies Engineering offers diversification, improving profitability and income
By Dr Mike Tubbs Published
-
Why undersea cables are under threat – and how to protect them
Undersea cables power the internet and are vital to modern economies. They are now vulnerable
By Simon Wilson Published
-
Warren Buffet invests in Domino’s – should you buy?
What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
By Dr Matthew Partridge Published