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Commodities Corner: Copper Soars to Nine-Year High, Lean Hogs Spike 15%

The Red Metal Sees Green  

It was running the bulls in the copper market this past week as the red metal topped $4 for the first time since the end of 2011. The bullish sentiment gave the industrial metal a 7% gain for the week, buoyed by strong Chinese demand and forecasts of a supply deficit this year. Is this sustainable or could copper prices head back down to earth?  

Over the last several months, the world’s largest copper consumer, China, has acquired vast volumes of the industrial metal to restock its inventories. As the nation accelerates its economic recovery, copper remains a critical component for everything, from construction to manufacturing to green energy. Many factories had remained open during this year’s Lunar New Year holiday, allowing copper to continue edging higher.  

According to a new report from Citigroup, copper supply will fall short of demand, raising the deficit to approximately 500,000 tons. The financial institutions anticipate the deficit to last for four of the next five years.  

But while demand has dominated headlines, it is the supply side that is impacting the market. Some of the world’s largest producers, such as Peru, have reduced production amid labor strife and the COVID-19 public health crisis. Still, like the broader commodities bull market, everyone is demanding copper at the same time, which is weighing on stocks.  

Copper is integral for green energy technology, electric infrastructure, automobile manufacturing, and consumer goods.  

A weaker greenback supported copper prices, with the US Dollar Index, which gauges the buck against a basket of currencies, slumping 0.15% over the last week to 90.34. A lower buck is good for dollar-pegged commodities because it makes it cheaper for foreign investors to purchase.  

But Commerzbank presents the case that surging copper and oil prices are “completely detached from reality.” Commerzbank precious and industrial metals analyst, Daniel Briesemann, wrote in a research note 

In our opinion, metals prices are currently being driven to a large extent by speculation, and the upswing is beginning to look excessive. From a technical perspective, copper and aluminum are overbought again at present, as measured against the relative strength index.  

  • Friday Settlement: +$0.1655, or 4.24%, to $4.0665 per pound  
  • Weekly Performance: +7.03%  
  • YTD Performance: +15.53%  

Paying More at the Pump in 2021?  

Gasoline prices are off to a roaring start in 2021, soaring more than 30% in the first few weeks of the calendar year. But can they sustain the momentum throughout the rest of the week? It may be appropriate to look at the last several days on the New York Mercantile Exchange to answer that question. 

Gasoline futures contracts have skyrocketed in the last week as harsh winter weather has been decimating refineries and crude oil prices are slowly returning to pre-pandemic levels. Market analysts believe that the fun is just getting started in the gasoline market, particularly as the economy recovers in the aftermath of the coronavirus-induced economic downturn and the government hands out additional direct-income support payments.  

This could lead to a spike of as much as 20 cents per gallon over the next few weeks, warns GasBuddy analyst Patrick De Haan.  

Oil prices have continued to rally as global oil demand recovers from the worst of the COVID-19 pandemic, and now the extreme cold weather shutting refineries down, U.S. motorists just can’t seem to catch a break. We probably won’t see much, if any relief, anytime soon.  

Following the devastating winter storm in Texas, nearly a dozen refineries were shut down due to the extreme temperatures, taking about one-fifth of the country’s refining capabilities offline.  

Vaccinations are also in focus since more people getting inoculated against COVID-19 could allow for greater travel at home and abroad.  

  • Friday Settlement: +$0.0746, or 4.16%, to $1.8689 per gallon  
  • Weekly Performance: +10.29%  
  • YTD Performance: +32.44%  

Forget It, Meat-eaters. It’s Hog Town  

Supermarket shoppers should anticipate paying more for their meat products this year. Farmers that raise cattle, hogs, and poultry are seeing higher prices for their corn and soybean feed, passing off the cost to suppliers and consumers. This was evident in the recent spike in lean hog futures, topping 85 cents a pound this week.  

Foreign demand is also predicted to surge well into the summer, including China that is witnessing a resurgence in its hog supplies after being devastated by the African swine flu. Meanwhile, output has tumbled this month amid slaughter delays across Texas and the Southern US Plains due to wintry weather blanketing the region. This week, 479,000 were processed compared to 488,000 from the previous week. The freezing temperatures and heavy snowfall have killed stocks and idled meat plants.  

Overall, market experts prognosticate that lower production could extend into the spring, despite increased pork consumption.   

  • Friday Settlement: +0.775 cents, or 0.92%, to 85.275 cents per pound  
  • Weekly Performance: +15.28%  
  • YTD Performance: +21.22%  

Cryptocurrency is a Bit Deal  

Next stop $100,000? What about $1 million? Is this the mother of all bubbles?  

The peer-to-peer decentralized virtual currency bitcoin has ventured to the moon in 2021, soaring by an astounding 91% this year. For the first time, the cryptocurrency’s market value topped $1 trillion as the price for one coin finished the trading week just below $56,000.  

Many factors have been contributing to the digital currency’s meteoric ascent this year. While Tesla Motors CEO Elon Musk’s tweets have supported crypto markets this year, the fundamentals are helping bitcoin prices to make history.  

Financial analysts present the case that bitcoin is being held as a global digital reserve asset. With inflation concerns rampant worldwide, investors are searching for hedges against currency depreciation and rising price inflation. The conventional strategy had been to buy gold and silver to hedge against inflation, industry observers aver that the young generation is pouring into bitcoin, ethereum, and other cryptocurrencies.  

Overall, bitcoin adoption is more ubiquitous than it was during the last bull run a few years ago. International regulators have urged caution, but most institutions and corporate entities have given it their blessing. It also helped that Tesla acquired $1.5 billion worth of bitcoin.  

Last week, North America’s first bitcoin-dominated exchange-traded funds (ETFs) were launched, allowing the digital currency to go mainstream in financial markets. The Bitcoin Fund (QBTC) and Purpose Bitcoin ETF (BTCC) have seen enormous volumes following their debuts.   

So, how high can bitcoin go this year? Some are predicting as high as $220,000 by the end of 2021.  

  • Friday Settlement: +$3,560.00, or 6.8%, to $55,900 per coin  
  • Weekly Performance: +15.27%  
  • YTD Performance: +91.31%  

If you have any questions and comments on commodities today, use the form below to reply. 

© AndrewMoran for Commodity Blog, 2021. | Permalink | No comment |
Published under: Bitcoin, Copper, Hogs, Oil

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