"Three Commodities Set To Boom As The Global Economy Recovers" -- Oil, Copper and Lithium

 Source:

https://oilprice.com/Energy/Energy-General/Three-Commodities-Set-To-Boom-As-The-Global-Economy-Recovers.html

" ... there’s growing optimism that the global economy is gradually marching towards a full reopening.

A year after the WHO declared the Covid crisis a pandemic, all the world’s biggest economies are on a rebound trajectory and slated to record significant growth in the current year after major slumps in 2020.

After shrinking by the largest amount in 74 years, the United States could emerge from the health crisis with its strongest growth in decades.

... The massive monetary and fiscal stimulus packages by the world’s governments appear to have worked to enable the fastest recovery after the March deep slide.

Factories are humming and consumers are spending again, helping to trigger a broad commodity rally thanks to the so-called reflation trade.

... Wall Street is now predicting a new commodity bull market that will rival the oil price spikes of the 1970s or the China-driven boom of the 2000s.

Market experts, including Goldman Sachs, believe the commodity boom could rival the last “supercycle” in the early 2000s that powered emerging BRIC economies (Brazil, Russia, India and China).

These expectations are supported by the fact that price movement of most commodities has historically been both seasonal and cyclical.

... so far, Wall Street appears to be right on the money with the Bloomberg Commodity Index (BCOM) up 11% in the year-to-date and nearly 40% over the past 52 weeks.

Here are 3 key commodities that can act as an inflation hedge and also as a nice play in the emerging commodity supercycle.

1. Oil:
After a historic slump, oil has also been on a tear, up 110% in a year.

In a sharp turnaround from last year, the energy sector has emerged as one of the best-performing.

Brent crude has been flirting with $70 per barrel, a level it last touched nearly two years ago.

The oil rally this year has been spurred by encouraging production discipline including OPEC+ recently extending most output cuts to April and Saudi Arabia agreeing to voluntarily extend its output cut of 1 million barrels per day output cuts as well as the ongoing Covid-19 vaccine rollout that gives hope that a full reopening might not be far off.

... Fed Chair Jerome Powell has promised to maintain aggressive support of the U.S. economy, the central bank’s quarterly economic forecasts will show how many of his colleagues share his commitment.

... So the current outlook is largely bullish for oil.

... with oil prices having surpassed even the most bullish projections on Wall Street, some punters are now imagining the seemingly impossible.

Bank of America says oil prices could spike over $100/barrel in the coming years.


2. Copper:
... The price of copper has doubled in the past year to over $9,000 a metric ton for the first time in nine years driven by tight supply and strong demand for the industrial metal.

Copper is moving closer to an all-time high set in 2011 as investors continue to bet that supply tightness will increase as the world recovers from the pandemic.

... copper is cyclical and driven by market expansion, and should see a surge in demand given the massive push to reopen the economy and the fiscal stimulus that could spur consumption.

Further fueling the rally is an anticipated ‘green’ shift in the post-COVID economy, which supports higher demand for copper and other base metals since EVs use about 4x more copper than gasoline-powered vehicles.

The International Copper Association estimates that the rapid rise of EVs will raise copper demand in EVs from 185,000 tonnes in 2017 to 1.74 million tonnes by 2027.


3. Lithium
Lithium bulls are enjoying their best moment in decades, lithium prices already up 88% YTD thanks to robust demand for cobalt and nickel free EV batteries.

... right now one of the biggest imbalances can be seen in the huge momentum behind EV stocks such as Tesla Inc. (NASDAQ:TSLA) and the lithium market, which has remained in bear territory for years now.

... Lithium’s moment to shine appears to have finally arrived, thanks to the massive electrification drive and robust demand for electric vehicles.

Specifically, lithium prices have been on a tear thanks to explosive demand for lithium iron phosphate (LFP) batteries according to Benchmark Mineral Intelligence (BMI).

BMI says battery grade lithium carbonate midpoint price (EXW China, ≥99.0% Li2CO3) for mid-March was a good 88% higher since the start of the year to over $12,600 a tonne, the highest level since March 2019.

Lithium hydroxide prices are up 20% over the timeframe, although a relatively deep discount to carbonate continues to exist.

Cobalt and nickel free vehicles are proving to be a runaway success.

... A year ago, Tesla Inc. (NASDAQ:TSLA) surprised the electric car industry when it announced some Model 3s made in its Shanghai factory will be equipped with lithium iron phosphate (LFP) batteries.

In December, only its second full month of sales, Tesla Model 3 55KWh LFP-battery captured 5.9% of the global full electric car market in terms of battery capacity deployed despite not being for sale in the US.

Strong demand in Europe saw LFP-powered Model 3s command 46% of all Model 3 sales in January.

The Democratic Republic of Congo (DRC) is home to over half of the global cobalt reserves and provides over 70% of the total cobalt feedstock production globally.

Unfortunately, for many years, human rights groups have highlighted severe human rights issues in cobalt mining operations including child labor, leading to buyers shunning supplies from the region."