[Practical Finance] Will the Strong Rally in This Year's Soaring Commodity Market Continue?

International Oil Prices Up 70% Since Early Year
London Metal Exchange Index Hits All-Time High
Commodity Fund Returns Reach 25%

[Asia Economy Reporter Song Hwajeong] Commodity prices are soaring. Prices have surged due to global supply bottlenecks and demand recovery following the phased return to normal life (With COVID-19). As a result, related products such as commodity funds are also recording high returns.

According to financial information provider FnGuide on the 17th, the year-to-date return of 42 commodity funds with assets under management of over 1 billion KRW reached 24.65%. Natural resource funds rose by 41.02%. Agricultural product funds also recorded a return of 26.68%.

By fund, KBSTAR US S&P Oil Production Companies Securities Listed Index Investment Trust (Stock-Derivative Type) (Synthetic H) rose 90.27%, and Samsung WTI Oil Special Asset Investment Trust 1 [WTI Oil-Derivative Type] (A) earned 76.86%. Mirae Asset TIGER Oil Futures Special Asset Listed Index Investment Trust [Oil-Derivative Type] rose 74.49%, and Mirae Asset TIGER Copper Physical Special Asset Listed Index Investment Trust (Metal) increased by 34.67%.

The high returns of commodity-related funds are thanks to the steep rise in commodity prices this year. International oil prices have risen about 70% since the beginning of the year. The price of West Texas Intermediate (WTI), which was below $50 per barrel at the start of the year, surpassed $80. Copper prices also surged significantly. Although it was below $8,000 per ton at the beginning of the year, it exceeded $10,000 in May, then weakened but reclaimed $10,000 last month and has been moving around $9,800 this month. Last month, the London Metal Exchange Index (LME Index), composed of six non-ferrous metals (Aluminum 42.8%, Copper 31.2%, Zinc 14.8%, Lead 8.2%, Nickel 2.0%, Tin 1.0%), hit an all-time high. Hwang Byungjin, a researcher at NH Investment & Securities, said, "The strong performance of the industrial metals sector in the second half is partly due to concerns about power shortages triggered by the global carbon neutrality trend," adding, "In China, which has set a carbon neutrality goal by 2060, the price of coal for power generation exceeded $200 per ton, while European natural gas prices surged more than 600% this year." Researcher Hwang added, "The inevitable rise in power-related commodity prices until early next year will accompany the strength of industrial metals."

Energy prices, which have recently somewhat stabilized, also have a high possibility of further increases. Kim Sohyun, a researcher at Daishin Securities, explained, "Energy prices are likely to reach a peak between the fourth quarter of this year and the first quarter of next year," adding, "Although the Iran nuclear deal issue is a risk factor, energy inventories are historically low, and oil demand recovery centered in Asia and increased heating demand in winter are expected."

Shim Soobin, a researcher at Kiwoom Securities, predicted, "Since tight supply and demand conditions are expected to continue until early next year, oil prices will likely move around the $80 per barrel range for the time being, but the possibility of additional sharp rises due to supply shortages is low."

The commodity market next year is expected to gradually stabilize rather than show a sharp rise like this year. Jeon Gyuyeon, a researcher at Hana Financial Investment, said, "While heating demand increased due to the cold wave in winter, energy supply such as coal and natural gas was limited, causing prices to surge, but considering the Chinese government's intervention in the commodity market and countries' efforts to secure commodities, energy prices are likely to gradually stabilize." However, geopolitical conflicts, global supply chain disruptions, and rising shipping costs are expected to act as factors increasing commodity price volatility.

If supply chain disruptions improve, commodity demand is expected to remain at a favorable level. Researcher Jeon said, "As supply chain disruptions gradually ease and manufacturing sentiment improves, commodity demand is expected to maintain a favorable level. Speculative net buying positions for oil and copper, which are highly correlated with the economic cycle, are expanding again," adding, "However, the possibility of a sharp rise in commodity prices as seen in the early stages of economic recovery is low."

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