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Has the bull market in commodities ended after the "pause button" was pressed?
May 20, 2021 14:37CST
[has the commodities bull market ended after the "pause button" was pressed? Only a week apart, the country will once again strike a heavy blow at commodity prices, which has been very rare in the past few years. Depressed by the news of the regulatory escalation, commodity-related stocks tumbled again in early trading today, with the steel sector falling more than 4% and coal and non-ferrous metals all down more than 2.5%.

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Only a week apart, the country will once again hit the phenomenon of rising commodity prices, which is very rare in the past few years!

After trading yesterday, Premier Li Keqiang presided over an executive meeting of the State Council, which made arrangements to ensure the stability of commodity prices and maintain the smooth operation of the economy. The meeting pointed out that since the beginning of this year, some commodity prices have continued to rise under the influence of multiple factors, mainly international transmission. We should attach great importance to the adverse effects of rising prices, implement the arrangements of the CPC Central Committee and the State Council, highlight key comprehensive measures, ensure the supply of commodities, curb their unreasonable price rises, and strive to prevent transmission to consumer prices. It is necessary to strengthen the two-way adjustment of supply and demand.

Depressed by the news of the regulatory escalation, commodity-related stocks tumbled again in early trading today, with the steel sector falling more than 4% and coal and non-ferrous metals all down more than 2.5%. In fact, before the opening of trading today, the domestic futures market had already seen an obvious diving market at night yesterday, with futures varieties such as black, chemicals and agricultural products falling collectively. Some industry insiders said that various signals show that the current determination of regulators to curb the excessive rise of commodities has become very firm. In addition, high inflation in the US and growing concerns about the Fed's tightening of monetary policy have "cooled" commodity markets.

Twice in a week, he was named and hyped by periodic stocks to completely "turn off the engine".

It is worth noting that this is the second "roll call" commodity price rise by the National standing Committee in a week. The executive meeting of the State Council held on May 12 called for tracking and analyzing the situation and market changes at home and abroad, so as to effectively deal with the excessive rise in commodity prices and their associated effects.

After combing through the recent policies on commodities, the Financial Associated Press found that it was not only the National standing Committee that called the names one after another, but also the National Development and Reform Commission, the Central Bank, the National Bureau of Statistics, and the China Iron and Steel Association, which also spoke out intensively or stepped in to cool down the commodity market.

Specifically, on May 18, Jin Xiandong, director of the Policy Research Office of the National Development and Reform Commission and spokesman, said at a news conference of the National Development and Reform Commission that at present, the National Development and Reform Commission and the State Administration of Market Supervision are jointly investigating the market situation of steel and iron ore to learn more about the industry. In the next step, we will continue to work with relevant departments to continuously strengthen monitoring and early warning, strengthen market supervision, and take targeted measures to effectively maintain market stability.

On the same day, the fourth general meeting of the Raw material working Committee of China Iron and Steel Association was held in Shanghai. The meeting stressed that in the next step, we should focus on accelerating the expansion of iron supply, optimizing the iron ore pricing mechanism, studying the establishment of a new pricing mechanism, improving the medium-and long-term contract pricing mechanism of coking coal, and continue to cooperate with relevant ministries and commissions to further strengthen research and analysis to promote the landing of relevant work as soon as possible.

Fu Linghui, spokesman for the National Bureau of Statistics, said at a news conference of the State Information Office on May 17 that the rise in international commodity prices in the short term may put some pressure on the production and operation of some downstream enterprises. For the impact of the rise in PPI, Fu Linghui said that the price rise as a whole is conducive to the improvement of enterprise efficiency, but the pressure on the downstream industry needs to be paid attention to. In the follow-up, effective measures will be taken to strengthen the market regulation of raw materials.

In addition, the central bank pointed out in its latest monetary policy implementation report that there has been an upward trend in global commodity prices and inflation indicators in major economies recently. With regard to the reasons for the rise in global commodity prices and higher inflation, the central bank said that there are three main driving factors: first, the governments of major economies have launched large-scale stimulus packages; second, there has been a marked rebound in the overseas epidemic, and there are still constraints on the supply side; third, the global liquidity environment continues to be extremely loose.

The central bank stressed that at present, the impact of the above three factors is difficult to eliminate in the short term, and the global inflation center may continue a moderate upward trend for some time.

In the context of escalating regulatory measures, the cyclical stock market, which was once in full swing after May Day, has also been pressed the "suspension key".

The market shows that the high point of the current round of the iron and steel plate comes from May 10, and the steel plate has reached a new high in nearly three and a half years under the soaring rise of three consecutive trading days after the festival. After the rapid rise, the profit market surged out, and a group of K-line combinations of "turnaround lines" first gave a blow to short-term speculative funds. After a small number of stocks went through the reverse trend on May 12, the tone of the National standing Committee became the last straw to crush the steel plate. Data show that since its peak on May 10, the largest adjustment in the nearly nine-day trading range of the iron and steel sector has reached 16.87%.

In terms of individual stocks, Valin Iron and Steel, Xingang shares and Angang shares fell in the top three, down 19.63%, 18.03% and 17.5% respectively, while 10 stocks fell more than 10%.

Coincidentally, the decline in the coal mining sector is also very large, Pingping Coal shares, Yanzhou Coal Industry, Jin Control Coal Industry and other 10 stocks fell more than 10%. A large number of stocks directly out of the A-top trend after the peak, which is very damaging to the market mood.

In this regard, some market analysts believe that the previous rise in commodity prices is a change in the inventory cycle brought about by the recovery, and the other is inflation expectations, which are now hitting inflation expectations. Inflation expectations deviate significantly from the trend of bonds, so this is also a repair of inflation expectations. The recovery does exist, so the impact on cyclical stocks is short-term. The core logic of cyclical stocks cannot be the inventory cycle, otherwise it will be short-term fluctuations, and the core restricting the long-term trend is the credit cycle and capacity cycle, which is still there at present, so it is still dominated by recovery in the later stage, not by inflation expectations.

As for the future trend of commodities, Wu GE, chief economist of Cheung Kong Securities, said that historically, global demand has been a key variable affecting commodity prices. The high point of this round of demand may be related to the time point of universal immunization in the United States and Europe. Combining leading indicators such as PMI and market consensus expectations, the peak of global demand expansion is expected to occur at the end of the second quarter to the third quarter, and the inflection point of bulk prices may not be significantly out of this range. Unlike in the past, this round of bulk prices are also affected by many supply constraints caused by the epidemic. According to medical experts, due to reasons such as vaccine shortage, the group immunization time of major raw material suppliers will not wait until at least the year after next, lagging far behind raw material demand countries such as the United States and Europe. The long-term existence of the contradiction between supply and demand supports the rigidity of bulk prices.

Looking ahead, Wooge said that the resonance between demand repair and supply constraints will remain for some time. As global demand slows around the third quarter, the momentum of large price increases may weaken. However, the supply constraints of raw materials are difficult to eliminate during the year, coupled with the fact that the dollar is prone to weakness before and after the withdrawal of the joint reserve wide policy, the decline in bulk prices may also be relatively moderate after peaking.

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