Inventories of some of the world economy’s most important commodities are at historic lows, as booming demand and supply shortages threaten to fuel inflationary pressures around the world.
From industrial metals to energy to agriculture, the rush for raw materials and basic foodstuffs was reflected in futures markets, where many commodities tumbled back – a price structure that signals scarcity.
The problems are particularly acute in metals, where spot prices for several contracts on the London Metal Exchange are trading higher than those for later delivery as traders pay steep premiums to secure immediate supply.
“This is the most extreme inventory environment,” Goldman Sachs analyst Nicholas Snowdon said. “It’s a completely new episode. There is no supply response.
The shortages come amid persistent global inflation, fueled by logistical disruptions and pent-up demand as economies recover from coronavirus shutdowns. U.S. consumer prices rose at their fastest annual pace in four decades last month to 7.5%.
Copper inventories on major commodity exchanges stand at just over 400,000 tonnes, representing less than a week’s worth of global consumption. Aluminum inventories are also low as smelters in Europe and China have been forced to cut capacity due to huge financial pressure caused by soaring energy costs.
“Inventory is low, not just at exchange warehouses, but throughout the supply chain,” said Michael Widmer, an analyst at Bank of America. “There is a limited security buffer in the system.” Aluminum hit a 13-year high above $3,200 a tonne last week after Goldman said inventories could run out by 2023.
Production cuts are just one factor in supply shortages, which have led the Bloomberg Commodity Spot Index, a key indicator of commodities, to rise by more than a tenth year-to-date and to reach a record high this month. Nine of the 23 futures that make up the index are in backwardation, according to data from Refinitiv.
Other shortage factors include a lack of investment in new mines and oilfields, inclement weather and supply chain constraints caused by the spread of Covid-19.
The International Energy Agency on Friday warned that crude oil prices, which are already trading above $90 a barrel, could rise further as producer group Opec and its allies struggle to restart production. after the worst of the pandemic.
“If the persistent gap between OPEC production and its target levels continues, supply tensions will increase, increasing the likelihood of greater volatility and upward pressure on prices,” he said. said the IEA.
In Europe, gas prices also remain high amid heightened geopolitical tensions over Ukraine and weaker flows from Russia. Across the continent, gas storage facilities are 35% full and below seasonal averages, according to commodity consultancy ICIS.
“The risk of shortages by the end of winter is remote at this stage, but the market will still have to guarantee a significant supply throughout the summer in order to avoid these worries returning next winter” , said Thomas Rodgers, European gas analyst at ICIS. .
In farmers’ markets, supplies of arabica coffee, the premium bean favored by espresso lovers, fell to their lowest level in 22 years.
Supply disruptions and lower exports from Central American producers have pushed stocks of arabica beans on the ICE futures exchange to their lowest level in more than two decades, as coffee buyers rush to lock in supplies.
Carlos Mera, principal analyst at Rabobank, said the decline in coffee stocks so far in 2022 was “astonishing”. A further drop could significantly increase “the possibility of an uncontrolled price spike”.
Arabica prices on the ICE futures exchange recently hit a 10-year high of $2.59 a pound, up 13% since the start of this year, and are more than double their level ago. a year.
Supply shortages are also looming in other markets. Citigroup estimates that demand for lithium, a key raw material for batteries, will exceed supply by 6% this year due to rising sales of electric vehicles.
Battery-grade lithium carbonate has soared over 400% in 2021 to over $50,000 per ton. With limited inventory, Citigroup analysts believe “extreme” prices will be needed to “destroy demand” and balance the market.