Why Commodities Index Hit at A Nine-Year High 

Summary

  • The Bloomberg commodity spot index surged to nine-year high levels amid robust economic recovery.
  • Almost all the commodities are rallying as the economic rebound bolstered their demand.
  • The commodity prices recovered significantly from the 2020 lows, on the back of vaccination programs and ease in lockdowns.

The Bloomberg commodity spot index surged to US$467.08 on 4 May 2021, hitting its nine-year high. The index, which tracks price movements for 23 commodity futures, registered a substantial decline in 2020 after the coronavirus pandemic severely hit the world economy.

Commodity prices fell significantly during last year due to subdued demand and weak economic conditions, primarily owing to COVID-induced lockdowns. The index hit the US$269.0 mark in April 2020.

Strong Economic Recovery:

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The decline in the commodity index was mainly driven by crude oil, the heaviest commodity in the group. The WTI crude oil prices sank to negative levels in April 2020 due to market gluts and the absence of buyers.

The gloomy scenario was not just limited to crude oil, prices and demand for other major commodities like base metals, including iron ore, copper and agricultural products, were highly impacted by supply chain disruptions.

However, the scenario is different now. Increased vaccination programs in the US, China and other major economies, ease in travel restrictions and robust economic recovery figures have led to bullish bets on commodity futures.

Riders of Commodity Bulls:

The commodity index has recovered more than 73.6 per cent from the 2020 lows. The index has recorded a jump of more than 10 per cent in the last one month.

Source: © Bradcalkins | Megapixl.com

Few of the favourable factors are: 

  • Crude Oil: Both the prominent benchmarks - WTI and Brent are up almost 30 per cent so far this year. The solid gains in crude oil prices are mainly driven by robust energy demand followed by the ease in lockdowns and some recovery in global COVID-19 However, rising cases in India, Japan and Brazil are a matter of concern, as they can partially offset the rising oil demand.

Must Read: Pandemic takes crude oil on a roller coaster ride

  • Gold: Gold traded at all-time-high levels in August last year. The prices crossed the mark of US$2,000 per ounce. The yellow metal is hovering around US$1,788 per ounce as of 4 May 2021. The US Federal Reserve's dovish policies, lower US Treasury Yield demand, and a weaker dollar are acting bullish for the precious metal.

Interesting Read: How Central Banks' domestic gold purchase plan can formalise artisanal gold mining

  • Base Metals: Iron ore is trading at nearly 13-year highs at US$190 per tonne, while copper is trading at 10-year highs at US$4.5 per pound as of 4 May 2021. The prices of both the base metals are fuelled by strong demand from China, the world’s biggest consumer of base metals, and better-than-expected economic recovery reading from the US and China. Joe Biden’s US$2.3 trillion infrastructure plan has also buoyed the prices of base metals.

Must Read: Iron ore rally bumps up ASX miners’ profits; supply concerns remain

  • Battery Metals: Nickel traded above US$19,500 per tonne during February 2021, the level last seen in 2014. Lithium is trading above CNY90,000 per tonne for the first time since August 2018. The rally in the battery metals can be attributed to strong demand in the automotive sector for the manufacturing of electric vehicle (EV) The recent surge in EV demand is mainly driven by stringent tailpipe emission guidelines and government subsidies.

Good Read: Hot EV Stocks: How have they fared in the past year?


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