Commodities rose the most in more than a decade this year, as a rebound in demand from pandemic lockdowns was met by limited supplies, fueling global inflation and forcing governments to act. But 2022 could tell a different story.
The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crops futures contracts, ends 2021 with a gain of 27%, the largest since the 2009 recovery from the great financial crisis. The prices of everything from gasoline and corn to copper and lumber have skyrocketed, making it more expensive to fill the tank, build houses, eat meat, make cars, and make cars more expensive. heating of houses.
The roll-out of vaccination campaigns and the easing of restrictions on travel and gatherings led to an increase in demand for raw materials at a time when supplies were still severely constrained due to lack of capital expenditure, loss of harvests due to weather conditions and logistical bottlenecks. Widespread shortages have led to a particularly sharp rally in commodity futures for short-term delivery, making the market even more attractive for funds already seeking exposure to energy, food and metals as a hedge. against inflation.
Heading into 2022, however, doubts are mounting over the extent to which commodities can continue to rise, as an expected slowdown in economic growth, especially in China, and a rebound in supply are likely to weigh on the prices. This year’s rally has put inflation at the center of policy-making, with central bankers considering cutting back the massive injections of cash used to revive economies at the height of the pandemic. The specter of rising interest rates also means that commodities may be less attractive to investors.
Already, hedge funds have reduced their bullish bets on commodities by 35% from a peak in February, according to US Commodity Futures Trading Commission data compiled by Bloomberg.
On the political scene, President Joe Biden has faced mounting criticism for the rising cost of living, especially the price of gasoline at the pump. Together with other countries, he decided to free 50 million barrels of crude from US strategic reserves in order to stem the oil recovery. Similar steps were taken by China earlier this year to curb soaring costs of metals. In addition, the fast-spreading omicron variant has blurred the outlook for demand.
Ed Morse, head of commodities research at Citigroup Inc., believes that lower commodity prices will help ease inflationary pressures in 2022.
âWe’re downright bearish on a whole bunch of commodities,â Morse said in a video to clients titled âDeflation, price divergence and decongestionâ¦ and more volatility to comeâ.
âThis is really the opposite of what we thought last year when we were strongly bullish in all commodities,â he said.
The Bloomberg Commodities gauge has already fallen 6.4% since it hit a record high in October and posted its first quarterly loss since early 2020, when pandemic fears caused markets such as oil to collapse.