By Jim Wiederhold, Associate Director, Commodities and Real Assets at S&P Dow Jones Indices.
Jim Wiederhold, Associate Director, Commodities and Real Assets at S&P Dow Jones Indices.
Several commodities made new all-time highs, as the global economy reflated, consumer confidence hit pre-pandemic highs, and housing prices in the US jumped the most in 15 years.
The S&P GSCI continued to perform well, rising 8.2% for the month to start the second quarter, following a strong 13.5% in the first quarter.
Most commodities sectors rose by several percentage points, while the S&P GSCI Livestock fell 2.3%.
The S&P GSCI Iron Ore rose 18.7% this month, more than tripling its performance from a year ago.
The S&P GSCI Biofuel rose 19.8%, as the underlying corn, wheat, soybean oil, and sugar displayed impressive double-digit percentage gains. The US Personal Consumption Expenditures (PCE) Price Index rose 2.3%, confirming inflationary pressures are here, albeit from the low April 2020 base.
In its latest meeting, OPEC+ agreed to stick to the plan of easing oil output cuts from May to July due to the upbeat demand picture. The different crude oil grades and heating oil performed well, but the S&P GSCI Natural Gas came to life this month, up 9.41%, due to demand. According to the International Energy Agency (IEA), the greenhouse gas emissions from natural gas are 45%-55% lower than those of coal to generate electricity. Natural gas is considered one of the lower-cost, lower-carbon-emitting vessels to help ferry the world to a net-zero future.
Copper climbed to its highest point in almost a decade in April, as the global economy continued to recover from the COVID-19 pandemic, pushing the broad S&P GSCI Industrial Metals 9.7% higher over the month. Industrial metals have benefitted from the world’s largest economies announcing programs to build back greener from the COVID-19 shock; at the same time, companies and investors remain reluctant to expand supply, despite the surge in prices. The recovery of global steel demand over the past 12 months has driven the market for its main ingredient, iron ore, climbing, and helped the S&P GSCI Iron Ore reach another all-time high in the last week of April. The resilience of iron ore prices has also been compounded by tight supply over the past three months, as Brazil and Australia experienced seasonal production reductions.
All precious metals rose in April, as the US dollar took a break. The S&P GSCI Palladium hit a new all-time high, rising 12.7% for the month. Like natural gas, palladium’s use in catalytic converters was the focus this month, with world leaders preoccupied about lowering greenhouse gas emissions.
The bulls came out to play in the agricultural commodities complex; the S&P GSCI Agriculture finished the month up 15.7%. The complex was turbo-charged by the S&P GSCI Kansas Wheat, up 20.1%, benefiting from less-than-ideal weather conditions for the winter wheat crop. Corn and soybeans also enjoyed strong performances over the month, with surprisingly moderate planting intentions in the US driving prices higher.
In contrast, the S&P GSCI Livestock was the only S&P GSCI sector down for the month, pulled lower by feeder and live cattle. The US cattle market was hit with lingering processing capacity issues on top of a steep increase in feed costs.
(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)