On Tuesday, the energy and materials sectors led the Australian sharemarket higher, with strong gains from the diversified miners and oil producers.
“There’s a recognition the vaccine is rolling out, so the focus is now turning to the stimulus and there’s going to be a lot of money flowing into infrastructure,” said Argonaut natural resources fund manager David Franklyn.
Battery materials such as nickel and copper have been among the strongest performers in the commodity space, as investors bet the record fiscal stimulus will be used to fund electrifying and decarbonising projects.
“There are fundamental structural trends that are in place,” said Mr Franklyn.
“I think what we’re seeing is those structural trends are not short-term trends and on the back of that, the outlook for those commodities is really strong.”
The price of copper extended its strong run, rising 2.1 per cent to a fresh nine-year high of $US9133 a tonne on Monday. with investors optimistic on strong demand, tight supply and the lowest global metal inventories in more than a decade.
Aluminium prices have also risen above $US2100 a tonne despite some market commentators suggesting the market was in surplus.
Iron ore prices are also remaining elevated, with the spot price rising 1.4 per cent to $US175.96 a tonne on Monday.
“We expect iron ore to taper modestly but it’s still going to be a really strong windfall for the major miners,” said Ausbil’s Mr Smith.
“It’s still at $US170 [a tonne]; you’re not really seeing a response from the supply side and China is still really strong in terms of demand.”
Energy markets are also rallying, driven by increasing demand and constrained production.
Commodities trading giant Trafigura Group forecast oil markets firming in the coming months, as the global economy emerged from lockdowns and the production shortfall in the US due to the Texas deep freeze adds to already tight supply.
Morgan Stanley raised its second half Brent crude forecast by $US10 to $US70 a barrel, saying the stars had aligned for the oil market faster than expected.
“COVID-19 cases are falling globally, mobility statistics are bottoming out, non-OECD refineries are running as hard as before coronavirus, inventories are drawing, time spreads are becoming deeply backwardated [when the spot or cash price of a commodity is higher than the forward price] and physical North Sea [differentials] have strengthened,” said Morgan Stanley commodities strategist Martijn Rats.
Brent crude is up 25 per cent so far this year, the strongest start to a year since at least 1989.
“This is remarkable, as global demand is still running 5 million to 6 million barrels a day below pre-coronavirus levels,” said Mr Rats.
Gold prices have also began rebounding in the last few sessions following a tough start to the year, with inflation expectations providing support for the precious metal that appears to have weakened at the expense of bitcoin’s record high this week.
“There’s a high correlation for commodities and gold to inflation,” said Mr Smith.
“There’s a big debate going on around inflation. The unprecedented level of stimulus, the expectations for inflation will continue to increase.”