The month of May will remain etched in economic history. On this date, the prices of copper and iron broke, in turn, their respective historical records. The red metal broke the symbolic mark of 10,000 dollars (8,167 euros) per tonne on the London Metal Exchange (LME) at the start of the month. A few days later, the tonne of iron ore was trading at its highest, at $ 230 per tonne on the Singapore futures market. “A ridiculous price”, exclaimed some analysts, commenting on this outbreak.
“We are living through an extraordinary period”, affirms, for his part, Philippe Chalmin, professor of economic history at Paris-Dauphine University and co-author of the annual report Cyclope, devoted to the world markets of natural resources, published Wednesday, May 26. In the foreword to the 35e edition of this work which he co-directs, M. Chalmin persists and signs.
While banks like Goldman Sachs do not hesitate to see this surge in prices as the beginnings of a “Super cycle” raw materials, he refutes this hypothesis. “This is probably not the case, even if at the start of 2021 the rebound in world commodity and commodity markets is indisputable. Its magnitude surprised us all. From lumber to iron ore, through corn, soybeans, not to mention copper, tin and palladium, both industrial and agricultural products are reaching record price levels. The markets are under stress as we have rarely known ”, he believes.
Crucial role of “geopolitical tensions”
This powerful turmoil in prices should be put in perspective with the sudden break caused by the health crisis. A crisis never seen since the Second World War. In March and April 2020, raw materials plummeted to the rhythm of the pandemic caused by the coronavirus. Symbol of this unprecedented period when cars and planes were stricken with immobility, the price of oil had even sailed for two days in negative territory. Copper fell below the $ 5,000 per tonne mark.
The gradual restart of the Chinese economic engine from June 2020 gave the signal for the rebound in commodities. China’s insatiable appetite, fueled by the government’s investment policy, has rekindled the flame, propelling industrial metals as agricultural commodities. Then, the United States, in turn, opened the tap widely to finance an ambitious recovery plan intended to get the American economy out of the rut of the health crisis. What to add fuel to the rise in prices.
The gradual restart of the Chinese economic engine from June 2020 gave the signal for the rebound
The acceleration of the energy transition, favored by the recovery plans, and the new needs it entails in terms of raw materials that have become strategic have helped to blow on the embers of the metals markets. The Cyclops report also highlights the crucial role of “ all the geopolitical tensions during which raw materials remain at the forefront, be it the construction of a gas pipeline in the Baltic Sea, the Iranian nuclear problem, Chinese imports from Australia ”.
Cash injected by central banks
Commodity prices denominated in dollars also benefited from the weakening of the greenback. But the considerable volume of liquidity injected by central banks, which sustains the boom in commodities, disconnects prices from market fundamentals, which inflates financial bubbles. Cyclops cites as an example cotton, embarked on in the wake of speculation, and whose price rose above 90 cents per pound in February, while stocks remain bloated.
“Logically and barring a catastrophe, we should witness, after this catching-up phase, a relaxation of the markets, at the end of 2021 or in 2022 “, predicts Mr. Chalmin. The Chinese government, worried about the risks of inflation, has already sent a warning message to speculators. For 2021, Cyclops, who risked the delicate exercise of forecasting, even more uncertain in times of pandemic, expects an average increase of 19% of its index made up of thirty-five commodities, after a fall of same order in 2020. With an average price of a barrel of Brent estimated at 55 dollars. It is now worth 68 dollars.