The commodity rally is now in a very interesting place. Key OPEC members refused to provide more oil by maintaining production cuts. Across industries, there’s a shortage of raw materials. The price of almost every commodity is rising.
User industries are struggling in this environment. If these prices hold even for a month, the resilience of developing economies will get tested. Manufacturing economics will suffer. Demand shocks are likely if the price inflation is passed on. Earnings estimates across industries would need aggressive revisions. Commodity players will see upward revisions and user industries may face downward updates.
If markets fail to consume confidently when prices rise sharply, a demand slump can shock several industries. Battling inflation would become extremely challenging and exchange rate moves will become doubly sensitive.
We urgently need visibility and stability in commodity markets. Unless we quickly stabilise demand, supply, and prices, the boom in commodities could well become what even the commodity companies didn’t wish for.
Meanwhile, the soft global price trends in gold present an extremely contrasting counter-trend to the overall commodity boom.