Reflecting Concerns of Demand Reduction Due to Price Surge
[Asia Economy New York=Correspondent Baek Jong-min] Major raw materials that had been soaring due to increased demand following economic reopening have all turned to a downward trend. Although investment banks such as Goldman Sachs have forecasted the start of a 'commodity supercycle,' concerns are emerging that excessive price increases could lead to a deterioration in demand.
According to Bloomberg News on the 19th (local time), prices of lumber, copper, oil, natural gas, and grains fell sharply in the international commodity futures market that day.
Copper fell 4.1% to $9,977.50 per ton on the London Metal Exchange. This is the largest drop since March 4. Most metals, including zinc, stopped their rally and turned weak.
The only metal that showed strength that day was gold, which rose due to institutional investors' preference for safe assets. Palladium and silver also declined.
Oil prices also failed to avoid weakness. West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange fell as much as 5.4% intraday. This is the largest drop in the past six weeks. WTI closed trading at $63.36 per barrel, down $2.13 (3.3%). Natural gas prices also remained sluggish.
The U.S. Energy Information Administration (EIA) announced that weekly crude oil inventories increased by 1.32 million barrels to 486.011 million barrels, which further pressured oil prices. Crude oil inventories turned to an increasing trend for the first time in three weeks.
Investing.com reported that concerns about an oversupply of oil if the Iran nuclear deal is reached were also reflected in oil prices.
Volatility in lumber futures was also notable. Rising lumber prices are a representative commodity showing U.S. inflation and supply chain bottlenecks.
On the U.S. futures market that day, lumber futures plunged 5% intraday but then rose 5% in the afternoon, showing significant volatility.
Lumber prices had been rising sharply due to limited supply amid the heat of U.S. home construction and interior demand. However, after reaching the $1,700 level on the 7th, prices have shown weakness.
CNBC reported that lumber prices rose excessively, reducing demand, and fewer buyers were trying to secure lumber at the $1,700 level.
The decrease in new U.S. housing starts announced a day earlier also reflects this situation. New housing starts in April fell more than 13% compared to March, marking the largest decline since the COVID-19 outbreak.
Grain prices also joined the weakness. On the Chicago Mercantile Exchange that day, prices of grains such as soybeans and wheat were down about 1-2%.
Bloomberg News explained that the sharp drop in commodity prices casts doubt on the commodity supercycle outlook. The news agency said institutional investors have been betting on a decline in about 20 major raw materials over the past month, and the seemingly unstoppable rise in commodity prices is being limited.
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