We’ve all heard of recovery and that can cause inflation. At first, the rise in prices indicates that the economy is growing. The problem comes when said inflation becomes hyperinflation, something that central banks have to prevent. But who will gain so much from the rise in prices, as well as the economic recovery?
The raw Materials. Over the last few months we have seen how the prices of the products of woodSawnwood and OSB in particular were rising to record levels in the US and Canada. The same situation is occurring with the prices of copper, the material that is used in the manufacture of cars, trains, airplanes, electronic systems, electrical systems, ships and even in space vehicles.
In general, the bets for the global economic rebound drive demand for all metals used in manufacturing and construction, not just copper. To be more precise, aluminum prices are expected to rise to $ 1,912 per tonne in 2021, 12.8% higher than last year. In the case of zinc, growth of 17% is expected and nickel 14.5%.
Comparative evolution of the price of raw materials. Trading View
Other factors that could explain the beastly rise could be due to the inability to spend money on travel, as well as the interruption in the mines of South America due to the Covid-19 and the difficulties to send material to the whole world. Likewise, we don’t have to forget President Biden’s infrastructure plan and the widespread distribution of vaccines in the US.
Copper consumption is likely to rise further with the substitution of fossil fuels to renewable energies. Be that as it may, the high prices of metals and other commodities have led investors to prepare for an acceleration in inflation.
The housing market has fueled a frenzy in wood prices. Corn futures have soared about 50% this year in Chicago, in part due to dry weather in Brazil. In the case of China, the construction boom promotes demand for steel. Finally, we must not forget that investors usually turn to raw materials to protect themselves from inflation.
In short, it seems that raw materials still have ground to gain. However, it must be remembered that after the explosive climb usually comes a steep drop.
*** Igor Kuchma is an analyst at Trading View