Our previous special report("[depth] can the bulk still rise? ")It is believed that the commodity rally since last year is likely to exceed that of 2009-2011 in terms of growth and sustainability. So although the rally has slowed significantly since late March 2021, it is not over, but further gains need new catalysts.

For the time being, we believe that the conditions are ripe for the end of the consolidation of commodities and that a new wave of gains is under way.

From a fundamental point of view, the United States is not only recovering consumption, but also investing in the future. Thanks to strong fiscal stimulus, US economic growth is expected to boost global economic growth by 2 percentage points in 2021, the highest since 1989 (figure 1). According to the latest forecast of the Atlanta Federal Reserve, the US GDP growth rate is expected to reach 8.3% in the first quarter of this year, of which private consumption contributed 7.1% to GDP, indicating that the current US economic recovery mainly depends on consumption.

Interestingly, private investment in the United States is often a derivative demand for household consumption.

As shown in figure 2, historically, the growth rate of private fixed investment in the United States has often lagged behind household consumption by one quarter, which means that if U.S. household consumption records a strong expansion in the first quarter of 2021, private investment is expected to catch up in the second quarter. coupled with the continued recovery of the real estate market and increased government spending in the same period, it will undoubtedly have a positive spillover effect on the global economy and commodities.

But it is not just the United States, but there is also a resonance in the recovery between Europe and the United States in the second quarter of 2021. Vaccination in the euro zone has accelerated significantly since April 2021 and is expected to cover more than 50 per cent of the population by early July.

As the end of vaccines accelerates and the number of new infections declines, the economies of most countries are expected to reopen in May, and as current leading indicators predict, the euro zone economy is expected to pick up significantly from the second quarter (figure 3).

Of course, the rebound in the growth rate of China's infrastructure investment in the second quarter of 2021 should not be ignored. Although the growth of infrastructure investment in China has been generally weak since 2018, throughout the year, the second quarter is often a period of obvious growth in infrastructure investment, with its average growth rate significantly faster than in other quarters of last year (figure 4). This is because the approval of major projects and the issuance of local special bonds tend to accelerate in the second quarter.

Given the current 19 trillion yuan annual increase in infrastructure investment in China, we should not ignore the impact of this seasonal rebound on global commodity markets.

Outside the demand side, supply-side tightening will still be positive in the short term. In the case of copper, for example, due to the lack of concentrate supply, the processing cost of copper concentrate in China is falling to its lowest level in 10 years, which puts great pressure on the profit margins of copper smelters. it is likely to further reduce the supply of refined copper through equipment maintenance or reduced raw material procurement; and in terms of supply and capital expenditure (figure 5-figure 6), the shortage of global copper supply is difficult to alleviate in the short term.

Based on the above analysis, we believe that commodities are ushering in a new wave of rally. As global agricultural prices continue to hit new highs since the outbreak, Brent oil prices are expected to break through $70 again in the second quarter of 2021, and LME copper prices will rise above $10, 000 by the end of the year.

Risk hint: the Fed tightens monetary policy too quickly, increasing geopolitical risks