The inflation data from the USA aren’t exactly encouraging. The uptrend in global commodities seems to pose a serious inflationary threat.

When the world is running low on inventories of several commodities, a sharp spike would naturally force user nations and user industries to stock up whenever a price correction happens. If corrections aren’t bought into and supply remains higher, then specific commodities can potentially correct.

But, the lack of adequate inventory in the hands of users, the potential disruption of supplies due to COVID, or even other events like the recent Suez blockage, will definitely work on the mind of the market. Everybody will focus on what the others are doing.

In such a situation, the first mover gets all the benefits. So far, China has played the first mover to great success in several commodities. The time may arrive when other players will emulate that strategy. This will only increase the pressure on those playing a waiting game. Slowly, we are moving towards a scenario where playing the waiting game will simply not be worth it. Impatience will force more players to simply stock up and not live on the edge.

This only ensures that the commodity markets remain tight and supplies aren’t really giving too much psychological comfort. In the medium term, prices will be a prisoner of actual user psychology. Clearly, the users are preferring to play safe now rather than be sorry later.


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