April 4, 2021 (Sunday) Cloudy; showers at night

・The true state of soaring commodities: the "Green Cycle" changing the supply and demand structure

Anomalies in world mining companies that should be struggling due to the COVID-19 pandemic.

Antofagasta, based in Chile, saw copper sales for the 2020 December term fall 4% from the previous period, and gold down 31%.

Sales rose 3% to $5.1 billion (about ¥560 billion); higher copper prices offset the decline.

Nickel and aluminum are also at high price levels. International commodity prices, including oil and grains, have begun to rise.

The backdrop is the resumption of economic activity stalled by the COVID-19 pandemic, bringing back demand for resources.

・The true state of soaring commodities: the "Green Cycle" changing the supply-demand structure

Even more money flooded into commodities from markets due to unprecedented fiscal and monetary easing.

According to U.S. research firm EPFR Global, funds flowing into commodity funds in 2020 totaled $56.3 billion.

It was the largest inflow since data began in 2005.

Japan Exchange Group (JPX) <8697> [closing price 2,680.0 yen], the trading volume of gold, one of the representative products of commodity futures, reached 8.59 million contracts in 2020, the highest in six years.

・The true state of soaring commodities: the "Green Cycle" changing the supply-demand structure

The year-to-date rise of the Reuters/Core Commodity CRB index, an international commodity indicator, was 11%, higher than the U.S. S&P 500 index at 7%.

Investment money flows into nearly all commodities, and there are familiar patterns when prices rise.

From the early 2000s, a period called the "super cycle" where oil and grains rose for a long time.

CRB index fell after peaking in 2008, but has recovered about 80% over the past year since a low in 4GA, signaling signs of a reversal.

Based on past rules of thumb, a new super cycle may be beginning again.

・The true state of soaring commodities: decarbonization shakes the market

The view that supply and demand are structurally tight for crude oil and copper is strengthening.

Underlying this is the rapid spread of decarbonization measures across countries in response to environmental policies.

・The true state of soaring commodities: decarbonization shakes the market

Tightness in supply and demand leading to price spikes (1) Supply shocks

Concerns about reduced production due to oil and investment restraint; in periods of rising international commodity prices, the sense of tightness in demand and supply has historically become evident first.

Then investment money accelerates the rise.

Currently, the gap between supply and demand for both oil and metals is beginning to surface.

While the shift away from fossil fuels will certainly reduce long-term oil demand,

the anticipated supply-demand tightening before that cannot be easily solved and poses structural issues.

・The true state of soaring commodities: decarbonization shakes the market

Tightness in supply and demand leading to price spikes (2) Supply shocks

Various statistics are starting to warn that a global copper shortage is becoming serious.

The ICSG, an intergovernmental organization of copper producing and consuming countries, announced that refined copper was short by about 560,000 tons in 2020.

Goldman Sachs notes in a report that “this is the tightest shortage in a decade.”

China’s increase in imports is, as with other resources, a factor pushing prices higher, but

along with that, the rapid expansion of clean energy is a major factor boosting copper use.

Nickel, cobalt, lithium, and other metals are, to varying degrees, in similar situations as copper.

Policies to stimulate demand by governments during the COVID-19 response are also increasing metal demand, and supply is unlikely to catch up in the near term.

・The true state of soaring commodities: inflows of easy-money fuel market overheating

Corn at a seven-year high, copper at a nine-year high.

“China’s record-high imports are a key factor attracting investment money,” some say.

That said, if the environment changes, investment money can withdraw quickly.

Last summer, gold prices surged to a record high above $2,000 per troy ounce, but money is flowing out recently.

This is due to expectations of increased U.S. debt and eventual tightening of monetary policy, which lifted U.S. interest rates.

・The true state of soaring commodities: commodity investment and exchange-traded funds (ETFs) bring it closer to you

With small amounts of money, you can combine gains or losses from stock transfers.

The appeal of commodity investing is that it moves differently from stocks and bonds.

Diversifying can reduce the volatility of investment returns.

A more accessible method is commodity ETFs. Unlike futures, you can invest basically with only available cash.

Compared with futures investments, you can invest with small amounts, which is an advantage.

・Commodity ETFs listed domestically