Rapid Recovery of Raw Material Prices... 'Supply Reduction and Infrastructure Demand'

WTI Recovers to $40
Copper Prices Rise 15% in Q2
Growing Expectations for Economic Stimulus Policies Worldwide

[Asia Economy Reporter Naju-seok] As economic activities resume, prices of raw materials such as copper, as well as crude oil, have begun to stretch their legs. Some investors have even mentioned the possibility that raw material demand may outpace supply, raising expectations that the pace of economic recovery could be faster than initially anticipated.

On the 22nd (local time), the Wall Street Journal (WSJ) reported that raw material prices, which had plummeted earlier this year, have begun to show a rapid recovery. The international crude oil price, West Texas Intermediate (WTI), recovered to $40 per barrel (closing price basis) for the first time since early March this year, closing at $40.46 on the day. Considering that WTI recorded negative prices in April due to concerns over oversupply and storage space issues, WSJ attributed significant meaning to this strong rebound. Metals such as copper and tin also rose more than 15% since the second quarter. Even agricultural products like cotton are showing an upward trend.

The rebound in raw material prices is largely due to the resumption of economic activities as lockdown measures taken to curb the spread of COVID-19 are being lifted one after another. In particular, the Chinese economy, one of the world's major raw material supply and demand centers, has shown a rapid recovery, followed by increased consumption in the United States. WSJ pointed out that historically, when an economy that was in a downturn phase shifts to a recovery phase, raw material prices tend to show a significant upward trend.

Zeroen Blokland, Multi-Asset Portfolio Manager at Dutch asset management firm Robeco Asset, explained, "There is growing confidence that the bottom has gradually been passed," adding, "With continued fiscal and monetary policies for economic stimulus, a powerful combination has been formed."

Traders expect commodity prices to continue rising despite the increase in new COVID-19 cases after the economic reopening. Even if concerns over the spread of COVID-19 slow the pace of economic recovery, attention is focused on the fact that supply has already been constrained due to reduced investment in raw materials. Since governments around the world have successively announced plans to expand social overhead capital (infrastructure) as part of economic stimulus measures, concerns over oversupply are unlikely for the time being. In particular, as infrastructure and construction plans continue, demand for raw materials such as copper is also expected to increase.

Stock prices of related raw material producers also showed an upward trend. The stock price of U.S. mining company Freeport-McMoRan fell to $5 per share in early March but closed at $10.79 on the day. Oil company ExxonMobil, which recorded $31 per share in mid-March, also closed at $46.42 per share.

Expectations for economic recovery were reflected not only in raw materials but also broadly in stock prices. WSJ attributed the 39% rise in the Standard & Poor's (S&P) 500 index from its early March low to these market expectations.

Some investors even bet that raw material supply will be difficult to recover in the short term, more so than the pace of economic recovery. They argue that in the long term, raw material supply will be insufficient compared to demand, leading to supply shortages.

This content was produced with the assistance of AI translation services.