core point

After the outbreak of the global epidemic in 2020, the global commodity market ushered in an overall rise. The fundamental reason is that the contradiction between supply and demand is prominent, that is, demand rebounds rapidly and supply repairs slowly. In addition, the Russian-Ukrainian conflict as a catalyst has exacerbated the mismatch between supply and demand, and the linkage effect of price increases has also been formed between commodities through the “input-output” relationship. Looking ahead, in the short term, the uncertainty from the Russian-Ukrainian conflict is still the main upside risk in the commodity market, while from a medium and long-term perspective, the global economic recession has become a downside risk in the commodity market. To sum up, in 2022 or the year when commodities peak, the price center of commodities may remain high, and the main export commodities of Russia and Ukraine, including crude oil, grains, fertilizers, aluminum, etc., may have strong anti-fall properties. . Entering 2023, commodity prices are expected to gradually fall, but compared with the level before the outbreak in 2019, the absolute value of their prices may still be high.

Commodity markets since the post-pandemic period. After the middle of 2020, the commodity market showed an overall upward trend, and the prices of most commodities, including energy products, industrial metals, and agricultural products, rose sharply. The reasons mainly include the following four points: (1) The fundamental reason is the prominent contradiction between supply and demand, that is, the rapid rebound of demand and the slow recovery of supply; (2) The conflict between Russia and Ukraine is the catalyst for the further rise of commodity prices in this round, including the war itself. Factors such as objective influence, sanctions against Russia by Western countries, and Russia’s counter-sanctions have all exacerbated the contradiction between supply and demand of commodities; (3) the production of some commodities requires another/multiple commodities as inputs, which makes the The price increase has a linkage effect; (4) The driving force of various commodity prices is also unique. For example, the insufficient scale of upstream investment in oil and gas resources has dragged down the repair of the supply side, and the abnormal weather has caused disturbances to the production activities of some crops, which also boosted the market. Do more emotions.

How sustainable are the highs in the commodity market? In the short term, the Russia-Ukraine conflict remains the biggest upside risk for major commodities due to the greater uncertainty over the duration of the Russia-Ukraine conflict and the coverage and extent of sanctions and counter-sanctions between Western countries and Russia. In the medium and long term, the downside risk to the commodity market comes from the expectation of a global economic recession. In 2022, or the year when commodities peak, the commodity price center may remain high, and the main export commodities of Russia and Ukraine, including crude oil, grains, fertilizers, aluminum, etc., may have strong anti-fall properties. From a long-term perspective, entering 2023, with the successive implementation of tightening policies in major overseas economies around the world, the global economic recession is expected to become stronger, and commodity prices are expected to gradually fall. However, compared with the level before the outbreak in 2019, Its price may remain high in absolute value for longer than expected.

Risk factors: There is uncertainty about the epidemic, uncertainty about geopolitical conflicts, and the monetary policies of major overseas economies exceed expectations.

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After the outbreak of the global epidemic in 2020, the global commodity market ushered in an overall rise. The fundamental reason is that the contradiction between supply and demand is prominent, that is, demand rebounds rapidly and supply repairs slowly. In addition, the Russian-Ukrainian conflict as a catalyst has exacerbated the mismatch between supply and demand, and the linkage effect of price increases has also been formed between commodities through the “input-output” relationship. Looking ahead, in the short term, the uncertainty from the Russian-Ukrainian conflict is still the main upside risk in the commodity market, while from a medium and long-term perspective, the global economic recession has become a downside risk in the commodity market. To sum up, in 2022 or the year when commodities peak, the commodity price center may remain high, and the main export commodities of Russia and Ukraine, including crude oil, grains, fertilizers, aluminum, etc., may have strong anti-fall properties. . Entering 2023, commodity prices are expected to gradually fall, but compared with the level before the outbreak in 2019, the absolute value of their prices may still be high.

Commodity markets since the post-pandemic

Since the epidemic, the commodity market has shown an overall upward trend. At the beginning of 2020, with the gradual spread of the new crown epidemic around the world, the collapse of demand caused the price of commodities to plummet, and the price of energy products, including crude oil, fell the most. Subsequently, driven by factors such as demand, supply chain, and liquidity, commodity prices returned to the upward range and showed an overall upward trend. The prices of most commodities, including energy products, industrial metals, and agricultural products, rose sharply. rise.

The fundamental reason for the overall rise in commodity prices in this round is the prominent contradiction between supply and demand, that is, the rapid rebound in demand and the slow recovery of supply. After the outbreak of the global epidemic in 2020, bulk commodities represented by energy products and industrial metals faced a situation where “demand rebounded much faster than supply repairs”, which was manifested by a sharp drop in the inventory level of the corresponding commodities. Specifically: (1) Crude oil – U.S. crude oil inventories fell all the way after hitting a high point in June 2020. Since the second quarter of this year, U.S. API crude oil inventories have been around 440 million barrels, and the EIA U.S. commercial crude oil inventory reading has been at Around 418 million barrels. In the past six years, the current inventory is only higher than the level from August to October 2018; (2) Natural gas – since the summer and autumn of 2021, the European natural gas inventory has been significantly lower than the level of the same period in previous years, and the approaching winter has led to a seasonal increase in the corresponding demand , inventory depletion has accelerated; (3) Industrial metals – Since mid-2020, LME copper inventories have been significantly lower than the same period since 2016. In addition, LME aluminum inventories will also continue to deplete in the second half of 2021, especially in 2022, when the inventory level is the lowest since the same period in 2016.

The conflict between Russia and Ukraine is the catalyst for the further rise of commodity prices in this round. Factors including the objective impact of the war itself, sanctions against Russia by Western countries, and Russia’s counter-sanctions have all exacerbated the contradiction between supply and demand of commodities. Russia and Ukraine play a pivotal role in the global commodity market. The main commodities they produce and export cover energy, industrial metals, agricultural products and precious metals. Looking at the proportion of the main commodities exported by Russia and Ukraine in the world in 2020, Ukraine is the world’s major exporter of agricultural products, and its barley and corn exports account for more than 10% of the global share; Russia’s main export commodities are more diverse, including natural gas. , pig iron, palladium and wheat have a share of more than 20% in exports. As the conflict between Russia and Ukraine continues to ferment, the production and export of bulk commodities in Russia and Ukraine have suffered a huge impact. Specifically, the damage to infrastructure caused by the war itself has hindered the export and transportation of Ukrainian agricultural products, while the continuation of the war may affect the sowing of crops such as corn; and Western countries have imposed sanctions on Russian commodities (such as the US ban on importing Russian oil and liquefied natural gas). , coal), and Russia’s counter-sanctions measures (such as the Russian government’s decision to ban grain exports to Eurasian Economic Union countries before June 30, 2022) directly led to a further intensification of the contradiction between supply and demand of corresponding commodities.

The production of some commodities requires another/multiple commodities as inputs, which makes the price increase of some commodities have a linkage effect. This phenomenon is more obvious in agricultural products and industrial metals: (1) Agricultural products are linked to energy products through the input factor of chemical fertilizers. The raw materials for fertilizer production include natural gas, coal and other energy products. Since the middle of 2020, the price of energy products has risen sharply. The combination of Western sanctions against Russia has caused a shock to the supply of fertilizers. The production cost forms a driving force for the price of agricultural products; (2) the price of industrial metals and the price of energy products are linked by the price of electricity, and high electricity prices will lead to the extraction and refining costs of metal ores. Taking aluminum as an example, its production process consumes high energy, and the high energy cost makes some aluminum plants choose to reduce production. According to the World Bank’s “Commodity Market Outlook” released in April, high energy prices have caused European smelters to reduce production by 17% in 2022, which will undoubtedly push up aluminum prices from the supply side.

In addition, the driving force behind the rising prices of various commodities is also unique. In terms of energy, the insufficient scale of upstream investment in oil and gas resources has dragged down the repair of the supply side. According to the “Market Report: Oil 2021” report released by the IEA, for the purpose of energy transition (Energy Transition), after 2015, the global capital expenditure on upstream oil and gas resources has dropped significantly. Especially after the impact of the epidemic in 2020, the total capital expenditure further fell, and the investment scale in 2021 is expected to be basically the same as the actual investment scale in 2020; in terms of agricultural products, the disturbance of the production activities of some crops caused by abnormal weather also boosted the market. Do more emotions. According to the China Meteorological Administration, a weak La Niña event has already formed in 2021/2022. According to historical experience, when this event occurs, the global temperature and precipitation in the winter of the current year and the spring of the following year will be abnormal. In the case of soybeans, South America faced dry and less rainy weather this spring, during the growing season for South American soybeans. In this fundamental context, the United States Department of Agriculture (USDA) continued to cut soybean production forecasts for Brazil and Argentina, which boosted the sentiment of long soybeans in the futures market.

How sustainable is the high level of the commodity market?

In the short term, the Russia-Ukraine conflict remains the biggest upside risk for major commodities. Due to the great uncertainty in the duration of the conflict between Russia and Ukraine, the coverage and extent of sanctions and counter-sanctions between Western countries and Russia, the prices of commodities that are highly correlated with Russia and Ukraine may continue to maintain Higher price levels, while the upside risks to its prices still cannot be ignored. Specifically: In terms of energy, due to factors such as the decline in idle production capacity and the reduction in investment scale, the supply and demand gap caused by Russia’s crude oil and natural gas export sanctions may be difficult to close in the short term; in terms of agricultural products, from the Ukrainian crop calendar released by USDA Look, Ukraine’s wheat, winter barley and rapeseed will all enter the harvest season from July, but the uncertainty of the conflict between Russia and Ukraine may affect its harvesting operations; in terms of industrial metals and precious metals, aluminum, nickel and palladium from Russia The supply of gold may face uncertainty about the degree of sanctions, and the impact of the Russian-Ukrainian crisis on market risk appetite may be an upside risk for gold.

In the medium and long term, the downside risk to the commodity market comes from the expectation of a global economic recession. Since mid-2020, factors such as soaring commodity prices, rising prices of manufactured goods due to supply chain bottlenecks, and rising labor costs have driven global inflation to rise rapidly. historically high. In response to inflation, the Federal Reserve and the Bank of England have started a tightening cycle, and the European Central Bank is also gradually releasing tightening signals. At present, with high inflation raising living/production costs, overseas central banks tightening liquidity, and weak domestic demand in China, the market’s worries about a global economic recession have increased. The further decline in the preliminary PMI data may also verify that the downward pressure on global economic growth is increasing. In the future, the weakening of support from the demand side may become the main downside risk for the commodity market.

To sum up, in 2022 or the year when commodities peak, the price center of commodities may remain high, and the main export commodities of Russia and Ukraine, including crude oil, grains, fertilizers, aluminum, etc., may have strong anti-fall properties. . From the perspective of the year, whether it is the mismatch between the supply and demand of commodities themselves or the problems of the global supply chain, it is difficult to quickly reverse, and there is great uncertainty in the fermentation of the Russian-Ukrainian conflict. The main commodities may continue to maintain a high price center. According to the latest forecast data from the World Bank, the price hub of energy, crops, fertilizers and base metals will be significantly higher in 2022 than in 2021. Among them, the main export commodities of Russia and Ukraine, represented by crude oil, grains, fertilizers and aluminum, may have stronger anti-fall properties. From a long-term perspective, entering 2023, with the successive implementation of tightening policies in major overseas economies around the world, the global economic recession is expected to become stronger, and commodity prices are expected to gradually fall. However, compared with the level before the outbreak in 2019, Its price may remain high in absolute value for longer than expected.

risk factor

There is uncertainty about the epidemic, uncertainty about geopolitical conflicts, and the monetary policies of major overseas economies exceed expectations.

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