COVID Copper, Or China Syndrome?

Copper, like lumber, had been the star of the space. Each had rocketed upward beginning last fall representing, for many, the leading edge of the inflationary wave sure to follow. The two garnered that much attention as well as given this much importance because the rest of the commodity class hadn’t really come close to matching their meteoric scale.

It was supposed to have been copper and lumber fronting the way and then all the rest of the “real” prices following behind. An inflation warning from the trailblazers then committed and backed up by everything else in due course.

This would only have been the case if real inflation was ever the reason for price behavior all around. More and more it is apparent this was instead a supply story, especially in the cases of our starry pair.

But it is no longer entirely about oversupply. There is always the other side to keep in mind, meaning demand. Supporting the price trends for these commodities as well as the others, if to a lesser degree, had been the imbalance drawn from both sides. Limited supply for rising demand, for some rapidly rising demand.

A little bit more supply comes on, and prices fall. Questions then begin to stir about demand, whether it is even going to be stable let alone still harried, and prices really then adjust.

In other words, these commodity leaders have suddenly become more like the bond market than they had been thought of just a few months ago when the unbreakable face of the coming Great Inflation #2.

Foiled by delta coronas?

It may be tempting to put the fate of our feature commodities in the hands of the politics of pandemic. By doing so, the inflation narrative is somewhat preserved in that this would mean once delta runs its course (if it isn’t already; see: UK) commodities can easily and quickly restore their demand picture and thereby go back on the side of the seventies.

This growing growth scare of late, however, isn’t so much “of late.” In fact, it has been growing for quite some time, and in joining the bond side copper and lumber are the latest to be caught up in uncertainty which goes back far further in time than deltas and lambdas.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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