[The Epoch Times, April 20, 2022](Comprehensive report by Wu Ruichang, reporter from The Epoch Times Special Department) The global economy recovered after the epidemic subsided, but energy, food, metals andwoodWaitCommodityprices, more chaotic than ever, fueling inflation.
According to the Wall Street Journal, most of theCommodityThe wild swings in prices make it more difficult and complex to do business for those individuals or companies that produce and use energy, metals, meat and food. This phenomenon forces those market speculators and other investors out of the market, and this exodus in turn pushes up prices for things like food and energy.
Commodities are in a “chaotic period” of prices, and many countries have high inflation
The Russian-Ukrainian war is exacerbating the level of market dislocation, especially in energy and food, as the two countries are large energy and food producing countries, coupled with global supply chain problems, which has further increased commodity prices in the market, while increasing consumer purchases. Pressure on daily necessities.
The U.S. Labor Department said on April 12 that inflation in the consumer price index (CPI), which measures what consumers pay for goods and services, surged to 8.5 percent in March from a year earlier, a 40-year high, and February’s Inflation was 7.9%. In addition, energy commodity prices in March were up 48% year-on-year.
South Korea, Asia’s fourth-largest economy, is also affected by inflation in Europe and the United States. Inflation was 4.1% in March, compared with 3.7% a year earlier. That led the Bank of Korea to raise interest rates to 1.5 percent in mid-April, the highest level in nearly three years.
New Zealand’s inflation rate of 5.9% in March was several times higher than the 1.4% in the same period last year, and the New Zealand government estimates that inflation will rise to 7% this year.
As an example in the report, the United States in 2022natural gasPrices are up 79% from last year, makingoilThe price broke the $100 mark several times. Despite the recent $23 drop from its peak, oil is still up 34% from the U.S. benchmark this year. In addition, energy prices in the euro zone rose 45% in March from a year earlier. These are a huge difference from when U.S. oil futures first saw negative $37.63 a barrel in April 2020.
The world economy had woken up from the epidemic, and consumers’ demand for commodities increased greatly.oilDrillers and farmers are catching up with supplies, but the Russian-Ukrainian war has left these things in short supply.
Tracey Allen, a commodities strategist at JPMorgan, told The Wall Street Journal, “Inventories in energy, agriculture and metals are extremely low right now everywhere. It used to be high, and now it doesn’t look like there is a cure.”
woodPrice fluctuates constantly
Affected by the Russian-Ukrainian war, Russia, a major exporter of timber, was embargoed by the EU. This move caused the price of timber in some parts of Europe to rise by 35% in April this year, and also brought huge problems to the European construction industry.
The report also mentioned that after the outbreak of the epidemic in the spring of 2020, many parts of the world began to shut down cities, provinces and even countries, leaving demand and prices in the commodity market at extremely low levels. This has allowed Americans who have been locked down at home for a long time to start remodeling their houses, which has heated up the sleepy lumber futures market, which is a good opportunity for homebuilders in the United States.
Last year, U.S. lumber futures prices fell back after nearly tripling. It quadrupled in May after falling back, but fell back to pre-pandemic levels in summer, and rose again in winter. U.S. lumber futures are currently down about 30 percent from last year.
Conifer and softwood sawn timber prices in the UK were £40.12 ($52.15) and £79.39 ($103.2) per square metre respectively in September 2021, 47.9% and 61.8% higher than the same period in 2020.
Although it was the most profitable period for U.S. sawmills, the high volatility in prices made lumber futures very risky, the report said.
Resolute Forest Products, a major Montreal-based lumber and pulp producer, lost $49 million in the spring 2021 quarter. A spokesman told The Wall Street Journal in late February last year that the company made up for those losses by selling large amounts of actual lumber, and if the company exited the futures market, it would be a huge loss for those involved in futures.
fertilizers andfood shortage Exacerbating rising food prices
The report mentioned that China and some major grain importing countries are stockpiling large quantities, which further pushes up the prices of grains such as soybeans and corn. Soybean prices are now up 16.8% from a year ago, wheat up 72.63% and corn up 35%.
Coupled with the impact of La Niña (anti-El Niño) phenomenon (the anti-El Niño phenomenon is the abnormal cooling of the water in the central and eastern Pacific Ocean, making the southwestern United States and the west coast of South America abnormally dry), the severe weather has caused the savannah of northern South America to become extremely dry. Wheat and oats are not harvested.
In early February, the situation between Russia and Ukraine was relatively severe at the time, which madenatural gasTighter oil and oil exports, coupled with low natural gas inventories in Asia and Europe after the winter, have sparked a global scramble for liquefied natural gas. As the price of natural gas rose, so did the price of electricity.
Fertilizer plants, which consume a lot of natural gas, have cut production due to rising costs, and the reduction in fertilizer production has further pushed up the production price of grain. In addition, data from the Food and Agriculture Organization of the United Nations also show that global food prices have risen to a record high in March this year.
Futures Trading Margin Increases Investors’ Choice to Flee
The report mentioned that exchanges and banks responded to the rapid rise in commodity prices by increasing their margins for traders in response to the sharp fluctuations in commodity prices caused by the shrinkage of cash. Because those collaterals, called margins, can insure banks and exchanges against losses caused by commodity price fluctuations, while preventing traders from defaulting on wrong bets.
The Intercontinental Exchange (ICE) has raised margins on European natural gas futures several times, including the sixth time this year. According to ICE data, the margin required for Brent crude in the nearly one-month (March and April) contract (covering 1,000 barrels of the global benchmark) is $11,920, or $11.92 a barrel.
Margin costs are now more than double what they were in 2021, as the price of a barrel of oil rose from around $63 to $115 a barrel about three weeks ago before the latest margin price was announced. The price of the expiring natural gas futures contract soared 46% on Jan. 27, the biggest one-day gain on record.
The price increase that day caused trading to be suspended more than ten times and triggered a circuit breaker mechanism (when the price fluctuation reaches a certain limit target, and triggers the suspension of trading). Most of the 21 best-performing stocks in the S&P 500 this year involve companies that produce energy, fertilizers or other commodities.
The report also mentioned that traders and analysts believe that trading in commodities not only increases the cost, but also increases the risk.
Tracey Allen, a strategist at JPMorgan, told The Wall Street Journal that she expects the commodity futures market, measured by value, to suffer from open contracts through the first week of April. This resulted in a decrease in transaction volume of approximately $94 billion. The reason for this is that investors and trading algorithms are moving away from volatile markets. She also said that “there has been a sharp decline in the number of these contracts traded in the market”.
Shankar Narayanan, head of research at Quantitative Brokers LLC, told The Wall Street Journal that the bigger the gap between the bid and ask prices, the higher the price of most commodities. greater volatility.
He also said that traders are concerned about the lack of liquidity in the market, the same problems will occur, and even large trades may be cut into smaller ones, which can make prices elusive.
Responsible editor: Lian Shuhua#
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