Lumber prices have further to slide as speculation dies down and supply catches up, a top commodity strategist says

Lumberjack lumber tree France forest
Lumber prices have fallen sharply in recent days.

  • The dramatic slide in lumber and copper prices has further to go, Saxo Bank’s chief commodity strategist said.
  • Ole Hansen said lumber supply was quickly catching up with demand, and speculators were leaving the market.
  • He also said demand for copper as an inflation hedge is falling as investors ignore price rises.
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The dramatic slide in lumber prices has further to go, as speculators pull out of the market and supply catches up with demand, Saxo Bank’s chief commodity strategist has said.

Lumber prices have fallen more than 42% since May’s record high of over $1,700 per thousand board feet, although they remain more than 150% higher for the year.

Ole Hansen, head of commodities at the Danish bank and a leading authority in the field, said a number of factors meant prices likely have further to drop.

“Something like lumber has been very much a pandemic-driven spike,” he told Insider. He said a lack of mill capacity and “people going crazy in their backyards, redoing their houses or buying a bigger house” had caused prices to soar.

Skyrocketing prices had sucked in speculators such as hedge funds, who are now pulling out of the market as prices dip, Hansen said.

“Some of that activity is bound to slow [and] supply is starting to meet the demand,” he said.

Hansen said the curve for lumber futures contracts is sloping downwards, showing that “the market is looking for quite some weakness as we head into the autumn and winter months.”

Hansen also said copper could drop another 10% from its current level over the summer, before rebounding later in the year. Copper is down roughly 10% from May’s high of around $10,750 per ton.

One reason for this is that investors think the chances of a dangerous rise in inflation have died down, he said. That means they are moving away from commodities like copper, which are seen as good stores of value at times of rising prices because they’re widely used in industry and technology.

Paul Donovan, chief economist at UBS Wealth Management, told Insider that commodities prices can be taken as a barometer of wider forces in the economy.

He said soaring home prices had cooled down some of the “frenzied” buying in the market, weighing on lumber. And he said peoples’ spending in many other areas had cooled after an initial splurge when economies first reopened.

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Not so hot: Bitcoin’s 50% plunge since April puts it far behind lumber, copper and US banks for the year

Bitcoin has lost around half its value since April.

Once up more than 120% for the year, bitcoin’s dramatic plunge since April means the world’s biggest cryptocurrency is now lagging behind a host of more traditional financial assets in 2021.

  • Bitcoin’s 50% plunge since April has put its 2021 returns behind a host of more-traditional assets.
  • It now lags well behind commodities and US banks, which have jumped as economies have reopened.
  • Bitcoin’s gains were on a par with the S&P 500 and Dow Jones on Tuesday after another sharp drop.
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Bitcoin has lost around 50% of its value since peaking at close to $65,000 in April. It traded below $33,000 on Tuesday, around 13% higher than where it started the year.

The 13% increase put it far behind some of 2021’s biggest risers – particularly commodities and bank stocks, which have jumped as economies have reopened and markets have stayed buoyant.

Bitcoin’s plunge even put the cryptocurrency roughly on a par with the Dow Jones and S&P 500 for the year.

Lumber prices have rocketed as housing markets around the world have boomed despite the coronavirus pandemic, with the random-length price rising around 40% in 2021. It stood at just over $1,220 per 1,000 board feet on Tuesday, after a fall in recent days.

Copper has also jumped as global manufacturing has picked up again, rising roughly 28% across the year to above $4.50 a pound on the New York Mercantile Exchange.

Even US banks, the bedrock of the traditional economy, were far outperforming bitcoin on Tuesday as a rebound in growth and rising bond yields boosted share prices. The Dow Jones US banks index has risen around 36% since the start of the year after a lackluster 2020.

Bitcoin was down close to 5% on Tuesday morning. Analysts said one explanation was that former President Donald Trump said the crypto asset “seems like a scam” on Fox Business. Another was that the US has recovered a major ransom payment by breaking into a wallet, denting the anti-government case for crypto.

The cryptocurrency could crash again if it falls much further, said Jeffrey Halley, senior market analyst at currency firm Oanda. “Failure of $30,000 will basically put every long position since January 1 in the red, which, I believe, will trigger another capitulation trade,” he said.

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Metal prices sink after China says it has zero tolerance for the commodity hoarders driving costs higher

iron ore
Visitors examine iron ore pellets produced by the LKAB mine in Kiruna, a mining town in the Swedish Arctic March 30, 2015.

  • Metals prices dropped Monday after China announced a strategy that could crack down on commodity hoarders who are driving costs higher.

  • Chinese steel rebar futures closed 2.7% lower and iron ore dropped 3%, according to Bloomberg data.
  • China will show “zero tolerance” for monopoly behavior and hoarding, said a report from the National Development and Reform Commission.
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Metals prices dropped Monday after China announced a strategy that could crack down on commodity hoarders who are driving costs higher.

Chinese steel rebar futures closed 2.7% lower and iron ore dropped 3%, after earlier being down more than 7%, according to Bloomberg data.

To push back against soaring commodities prices, China will show “zero tolerance” for monopoly behavior and hoarding and will continue to increase law enforcement inspections and investigate abnormal transactions, said a report from the National Development and Reform Commission.

The report was released after China summoned executives from top metals producers and officials from multiple government departments to talk about iron ore, steel, copper, and aluminium on Sunday.

The NDRC said that “excessive speculation” has disrupted the normal production and sales cycle in commodities and contributed to price increases. According to Bloomberg, the NDRC started warning about higher raw-materials prices in April.

Aluminum dropped 1.09% to $2,370 a ton on the London Metal Exchange. Copper was down 1.66% to $9,881 a ton.

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Goldman Sachs breaks down how a worldwide copper-mining shortage could drive parabolic gains in the metal’s price over the next 10 years

chile copper mine
Workers monitor a process inside a plant at the copper smelter of Codelco Ventanas in Ventanas city, Chile, February 15, 2012.

  • Andrew Snowdon of Goldman Sachs broke down how a supply shortage in copper mining projects will propel the metal’s price higher.
  • The firm recently said the metal is “the new oil,” and could reach $15,000 by 2025.
  • Snowdon said mining projects are hesitant to invest in growth, and the copper price will need to soar even higher to change that.
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Goldman Sachs recently published a note declaring copper “the new oil,” and forecasting it could reach $15,000 by 2025 as the world transitions to clean energy.

The firm said copper is the most critical raw material in the world’s path towards net zero emissions because it’s used in everything from electric vehicles to wind turbines and solar power.

In a recent Goldman Sachs podcast episode, Nick Snowdon, one of the researchers, broke down why the soft metal is facing a record supply shortage that will propel the price higher.

“The long-term supply gap in the markets, so when you look forward ten years, that gap currently stands at just over 8 million tons, so nearly 40 percent of the size of the market in terms of the long-term shortfall,” said Nick Snowdon. “That’s larger than anything we’ve seen in the history of the copper market.”

The market will need an enormous number of copper mine projects approved to meet demand, he said. He stressed that the shortage of supply isn’t in copper itself, but in mining projects.

“There is enough copper out there. This isn’t a story of the depletion of copper ore. But there is a very limited list, currently, of copper projects,” Snowden said.

Snowdon said the supply side is completely underprepared for the demand surge in copper that is set to come as countries move towards renewable energy initiatives. Over the last 12-18 months, he said hasn’t seen a single new major copper project being approved.

“Essentially we’re sleepwalking to huge deficits and scarcity. And prices will have to rise even higher than is currently our base case,” Snowdon said.

One reason for the mining-supply shortage is because the mining sector has been in a very conservative setting in terms of its balance sheet activity, said Snowdon. The sector hasn’t invested in early stage project development and so now, the quality of projects compared to 10 years ago is “very poor,” the researcher said.

Even now, record price levels haven’t caused a shift in supply investment like one might expect, he added.

That’s because in the early 2010’s, the mining sector invested heavily in projects, only for the price in copper to collapse shortly after, punishing any producer who invested heavily in new projects.

“That memory lingers really amongst the current generation of producer management,” Snowdon said.

He also explained that ESG initiatives slow down the process of getting a mining permit approved. Additionally, the coronavirus created operational challenges in copper mining.

Snowdon said right now, the quality of mining projects is lower and the costs are higher, and the price of copper will need to move up even further before there’s an incentive to invest in more projects.

“It’s not an easy proposition of saying, “Okay, let’s just invest in growth,” because the economics are not as attractive as they were if you go back to the mid/late 2000s,” said Snowdon.

He continued: “So, I think all of those are combining to generate this restraint. And really, the only thing that can break that has to come from price dynamics and an incredibly high price. And we don’t think the current price is, yet, at the level to generate that shift.”

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