The next wave of the global recovery could send commodity prices soaring

The next phase of the economic recovery is likely to be driven by commodity-intensive infrastructure investment, analysts have told CNBC, potentially setting the stage for further gains across the industrial space in the coming months.

“We’ve already seen a metals-intensive response in China, highly metals-intensive,” Max Layton, head of EMEA commodities research at Citi, told CNBC via telephone. “It has been absolutely stunning how strong China has rebounded on the construction side of things,” he continued, reflecting on the “spectacular” rally seen across the industrial commodity space as a result.

The coronavirus pandemic has prompted forecasters to issue dire economic projections this year, with the OECD warning on Wednesday that the outlook remains “exceptionally uncertain.”

One sign the recovery may be gaining momentum, however, came as the world’s second-largest economy reported industrial output expanded the most in eight months in August.

China, which has been in recovery mode for months now, published data on Tuesday that showed industrial output growth accelerated to 5.6% in August when compared to a year earlier.

Spot iron ore prices climbed to fresh six-and-a-half-year highs on Monday, trading close to $129 a dry metric ton on the back of a construction boom in China. The steelmaking ingredient has since pared gains, changing hands at $126.59 on Friday. Iron ore prices have climbed more than 37% year-to-date.

Alongside net-zero interest rates globally, demand for a hedge against a perceived inflation risk has helped spot gold futures jump more than 28% so far this year, while silver has gained around 50% over the same period.

President Donald Trump was rumored to be preparing a $1 trillion infrastructure plan earlier in the year, Reuters reported, citing an unnamed source. However, his position on future investment into infrastructure has remained vague ahead of the November 3 presidential election.

The Trump campaign announced the president’s second term agenda last month, pledging to “build the world’s greatest infrastructure system.” The press release offered no further detail on how Trump planned to fulfill this promise if re-elected. In 2016, the incumbent Republican famously committed to spending $1 trillion on infrastructure, but nothing much has happened since.”

The next wave of the global recovery could send commodity prices soaring, CNBC, Sep 19