Despite the deepest crisis in the world economy since the Second World War, there has recently been a brilliant boom in natural produce. However, individual raw materials such as palladium, copper or soy still promise good opportunities for investors. By Emmeran Eder, Euro am Sonntag
On September 4, the Bloomberg Commodity Index ended a trading week slightly in the red for the first time since the end of June – after nine consecutive weeks with a positive return. The broad raw material barometer contains the most important raw materials from the areas energy, Precious and industrial metals and agricultural products. The index’s upward phase was the longest in decades.
It was triggered for various reasons. First of all, there is the economic recovery in China. The Chinese stocked up on raw materials in the past few months. As the economy in China continues to pick up speed, this trend is likely to continue for now.
Fears of inflation as a price driver
In the case of precious and industrial metals, there were also delivery problems in some producing countries in Latin America or Africa because mines were closed due to the Corona crisis. In addition, fears of inflation drove commodity prices. The US Federal Reserve’s announcement that it would temporarily allow prices to rise by more than two percent in order to support the economy and the labor market prompted investors to diversify into commodities. Precious metals in particular benefited from this, but also other natural products. As tangible assets, these are used as protection against inflation.
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The prices for some agricultural products were also driven in part by unfavorable weather conditions. In addition, the sharply depreciating US dollar played an important role in the bull market. Commodities are traded in dollars, and a weak greenback makes them cheaper.
Despite higher prices, there are still commodities where the upward trend could continue for the time being. These include palladium, copper and soybeans.
Demand for palladium is increasing
Palladium has recently benefited from the sharp rise in car sales in China, the US and the EU. In China, with 1.66 million vehicles in July, these climbed above the January level before the pandemic really made itself felt in the economy. In Europe, sales are still slightly below the February level and in the USA they are still ten percent below, but have recently increased strongly.
Since around 85 percent of global palladium supply is used in catalytic converters, demand from the automotive industry dominates the palladium price. It should stay that way for now. “The often discussed changeover to the cheaper platinum is not easy, since production lines would have to be changed, which requires a long lead time,” explains Daniel Briesemann, raw materials analyst at Commerzbank.
The demand for palladium is even likely to increase because emissions regulations in the EU have been tightened. This means that more palladium is required in the catalytic converters in order to be able to filter the exhaust gases better. Even so, supply and demand for the metal will be roughly balanced in 2020 after years of a supply deficit.
But that can change quickly. Because in the palladium ETFs currently only 507,000 troy ounces of the metal are bound around the world. At the beginning of 2019 there were 720,000. “Many investors have sold their ETFs at the high prices,” says Carsten Fritsch, precious metals analyst at Commerzbank, as the main reason for the decline. Should investor interest rise again, this should drive the palladium price up.
Chinese hoard copper
Similar to palladium, copper also rose recently. The revitalized Asian economies are primarily responsible for this. They import 70 percent of the copper sold globally, the lion’s share of it from China. “In the spring, the Chinese hunted snacks and used the low prices at the time to secure large quantities,” says Briesemann. Since there are usually three months between ordering and importing, this did not become noticeable for imports until the summer. This can also be seen in the high stocks of 180,000 tons currently stored on the Shanghai Stock Exchange, 20,000 more than a year ago.
But these are missing from the world market. Since demand also increased in Europe and the USA in the summer, the empty market led to price increases. “Because of the well-stocked warehouses and the large quantities purchased, I do not expect China to have any more price-driving effects,” says Briesemann. However, this could continue to come from Europe and North America, since demand there remains high. China’s exports, which rose by 9.5 percent in August, show that the economies of the industrialized countries are reviving with a time lag compared to the Middle Kingdom.
At the same time, copper stocks at the London Metal Exchange (LME), the most important trading center in this sector, fell to 82,500 tons, the lowest level since the end of 2015. This is one reason why speculators are positive. The net long positions on the LME are at their highest level in two years, which also speaks for higher prices from this side. However, most of the price hike should already be over. It therefore makes sense to participate in the already advanced bull market with a knock-out certificate and to leverage profits.
Record soy crop in Brazil
The same goes for soybeans. Like many other agricultural products, these have risen sharply in price in the past few weeks, even though the largest producer country, Brazil, achieved a record harvest. China, as the largest soybean importer, has largely absorbed this. Because of the trade conflict with the US, it had to replace US soybeans with South American soybeans. The need is currently great as the swine flu has been overcome.
The number of pigs has increased significantly. This means that the breeders in the Middle Kingdom need a lot of feed again. 80 percent of soybeans worldwide are processed into animal feed. “China is dependent on soybean imports because the rising middle class is hungry for meat,” says Gerhard Bellof, professor of animal nutrition at Weihenstephan University. Soy meal, the animal feed made from soybeans, is the most important source of protein for animals.
The bull market in the agricultural product is likely to continue as China recently ordered a large number of soybeans again to comply with phase 1 of the trade agreement with the US that was concluded this year. At the same time, the harvest in Brazil is running out while it is starting in the USA. According to the industry service, this is due to dry weather IHS Markit but will probably turn out worse than expected.
Investors could feel this toowho invest in raw materials. These are very volatile and are only suitable as an admixture. If you want to cover the market broadly, you should use the Amundi fund (see investor information). Individual commodities are only recommended to experienced investors who are prepared to take risks.
Globally, 40 percent of palladium is mined in Russia. The current conflict over Alexej Navalny could lead to speculation in the short term that there will be delivery bottlenecks due to new sanctions. In the last major crisis with Russia over eastern Ukraine in 2015, however, that was not the case.
WT Physical Palladium ETC
Palladium ETF sales long squeezed the metal’s supply deficit. At the now low level of stocks in the products, no dampening effect can be expected from here. Speculators’ long positions are also low. Among other things, buyers of the Palladium ETC from WisdomTree are counting on increased interest from ETF investors and futures market players.
DZ Bank knockout certificate copper
After the fulminant bull market since the beginning of July, copper is currently consolidating in the range between $ 6,500 and $ 6,700 per ton. If the resistance at $ 6,800 a ton is overcome, it can rise to the mid-2018 high of $ 7,300. With a leverage certificate from DZ Bank, risk-ready investors can participate. The knockout barrier at $ 2,641 is 60 percent away. Since the bull market is already well advanced, investors should pay attention to the stop prices.
GS Mini-Fut.-Zer. Soybeans
Not only higher orders from China for feed support the soy price, but also the increasing number of vegans who eat tofu and soy quark or drink soy milk. The plant is high in protein and nutrients. Not only in Europe and the USA, but also in Asia, vegan food is on the rise. Investors can also benefit from this with the leveraged Mini Future Certificate on soybeans from Goldman Sachs.
Amundi Commodities Fund
Amundi’s fund invests in the commodity futures markets using derivatives and futures. It participates two-thirds in the performance of the Bloomberg Commodity Index, the rest is invested in derivatives on individual commodities. In contrast to most other commodity funds, in which these are excluded for ethical reasons, investments can be made in agricultural products. The product is partially currency-hedged and a profit-sharing fee can be charged.