It wasn't exactly exciting to invest in raw materials in the past few years.
The Bloomberg Commodity Index reflects this impressively as one of the more well-known indices: it has moved within a narrow range since 2015.
According to experts from asset manager Unigestion, the Corona year 2020 could have been a so-called "game changer", "as commodities experienced a phenomenal increase after an initial crash that caught the attention of investors and made headlines".
For example, many mines were temporarily closed during the initial global lockdown.
Then came the familiar monetary and fiscal policy impulses and with the easing, the global economy experienced a V-shaped recovery.
In their slipstream, there was an increase in the demand for many raw materials and also various bottlenecks.
In the opinion of Jeremy Gatto, raw materials analyst at Unigestion, not much should change for the time being.
Last year, commodities markets rallied the strongest since the 1970s, but most commodities markets are still well below the highs of the past decade.
Wood prices rise by 900 percent
"Aside from the strong growth momentum we are seeing, many countries have announced huge infrastructure spending, which should further stimulate the demand for the raw materials that underpin these projects," said Gatto, referring to the two major projects, the 2.3 trillion -Dollar infrastructure plan by America's President Joe Biden and the “NextGenerationEU” plan worth 750 billion euros from the European Union. "So the raw materials sector is no longer dependent solely on Chinese growth," says Gato.
Anyone who is building a house or renovating it on a large scale in Germany can experience the phenomenon live.
Many craftsmen are currently having problems getting wood construction material.
Its price has recently gone through the roof.
According to Unigestion, wood recently recorded a price increase of 900 percent compared to the previous year.
The National Association of Home Builders (NAHB) recently reported from America that the rise in the price of wood has already led to an increase of $ 36,000 for the average single-family home.
The causes in Germany, on the other hand, are complex.
The domestic demand for coniferous sawn timber has increased overall due to increased exports, and a rapid relaxation of the price trend is not in sight.
Reviews are not (yet) exaggerated
It is not just the ecological raw material wood that has become massively more expensive. The price of copper, for example, has more than doubled since the lows in the corona pandemic to date, and since the beginning of 2021 the increase has been 30 percent. According to Unigestion analyst Gatto, commodities are one of the few market segments where valuations would remain attractive, while "many growth-oriented assets such as developed market stocks are showing signs of exuberance and exaggerated valuations." Many commodity markets (including those for oil and copper) are in steep "backwardation". This means that the forward price is lower than the current price level.
Even if there could be price declines in the short term, the medium to long-term trend on the raw materials market should remain positive.
In this context, cyclical raw materials such as industrial metals appear particularly interesting.
Some analysts are already talking (again) about the new commodity super cycle that investors could experience - a high phase that will last for several years.
Green technologies drive prices
Michel Salden, commodities specialist at the Swiss bank Vontobel, says: “The super cycle story for commodities depends on whether supply structurally falls short of demand.” Salden expects this to be the case in the energy sector. Energy consumption is increasing faster than the (new) capacity in renewable energies. For example, the demand “for copper and aluminum is accelerating due to global ESG projects”, but the supply is limited as the price level of the past decade has not created enough incentives for the development of new mining projects.
It is therefore a fact that the path with green technologies towards the global energy transition will be the biggest price driver for certain raw materials such as rare earths, silver or lithium and nickel. Any company who wants to mass-produce wind turbines, electric motors and batteries as well as solar modules will have to deal with rising raw material prices in the coming months.