Commodities prices surge again, spurring inflation

Booming demand combines with supply shortages to up costs.

After a summer breather, the commodities the world relies on for construction, manufacturing and keeping the lights on are surging again.

Aluminum to steel have seen renewed rallies and European gas and power have hit fresh records, while a gauge of spot commodities prices is on the verge of breaching a decade-high set in July. That’s threatening faster inflation, increasing consumer costs and putting pressure on central banks to curb the massive stimulus measures behind much of the raw-materials advance.

Booming demand from the economic recovery has combined with supply woes — from China’s emissions crackdown that’s cutting metals output to scant European gas reserves — to tighten markets. At the same time, the cost of shipping those goods is rising. With a growing scarcity across physical markets, Goldman Sachs Group Inc. sees prices climbing further in the coming year.

“Physical goods demand has reached such high levels — above pre-pandemic trends in all but oil — that the system is becoming increasingly constrained in its ability to supply these goods,” Goldman analysts including Jeff Currie said in a note on Monday. “Markets are becoming increasingly exposed to any type of supply disruption or unexpected demand increase.”

Massive global stimulus measures are keeping metals demand strong and helping copper to remain historically high. Yet the economic bellwether has been overshadowed lately as China’s move to curb metals production to reduce pollution and a coup in key bauxite supplier Guinea sent aluminum to a 13-year high of $3,000 a ton.

China’s emissions clampdown has also seen nickel hit the highest since 2014 and pushed local steel prices higher.

“Although we view the current prices as excessive, and although aluminum is overbought from a technical perspective, there is no sign as yet of any trend reversal,” Commerzbank AG said.