Preface

The recent turmoil in the commodity market has been likened to a rollercoaster, with steel prices skyrocketing as if they were "riding a rocket," only to reverse course within days and surge back to levels seen three years ago. The sharp rise in prices over a short period has garnered significant market attention, with inflation expectations, loose liquidity, and a sentiment of chasing gains all interwoven, making commodities the focal point of the market.

So, what does this frenzied market trend actually signify? People are interested in this topic not only because of the price changes themselves but also because they want to understand the underlying logic and potential future directions.

I. Steel Leads the Surge: The "Rocket Market" in Commodities

The recent trend in steel prices can be described as "heart-stopping," with a rapid ascent over the course of just a few days. Steel that once lingered at low levels, as if it had been sitting on a "rocket launch pad," saw its prices soar vertically, returning to levels from three years ago in a very short time. To put it in a popular phrase, "it really took off."

According to data statistics, steel prices surged by 15%-20% within a few days, with futures prices for steel in many places staging a series of "high open and high go" dramas. As the "vanguard" of the commodity market, the skyrocketing prices of steel also quickly pulled the entire sector higher.

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The sudden price surge inevitably prompts a sigh: after three years of being a "submarine" lurking beneath the surface, steel has finally emerged in one breath. Looking back at the past three years, steel prices once plummeted to their lowest point, with oversupply and excess capacity, and it was not unusual to hear news of "mountains of iron ore."

But this year is different; suddenly, there was a mismatch between supply and demand, with demand skyrocketing, and steel prices, like being injected with a stimulant, soared within days. From Hebei to all parts of the country, steel prices have experienced a sharp increase.

A large number of infrastructure projects have been launched, and the demand for steel from real estate and manufacturing has grown rapidly, making supply not meeting demand the main contradiction. In the market, the prices of rebar and hot-rolled coil have also followed suit, climbing steadily upwards.The surge in prices has also brought about a "chasing the rise craze." Many people, seeing the steel prices rising "as if they had gone mad," have rushed into the market to chase the rise, fearing to miss this "wealth rocket." In the capital market, steel futures have become the darling, with trading volumes once breaking previous records.

Some investors even "buy while rising," buying more and more, which makes people worry about how long this wave of the market can last. Once the market sentiment gets excited, it forms a situation where steel prices "rise sharply in a short time," vividly performing a "revenge of the commodity."

This "rocket market" has not only driven steel but has also affected other commodities. As soon as the price rises, everyone is paying attention: who will follow the "rocket" to take off next? The commodity market is extremely lively, with crude oil, copper, aluminum, and other commodities also rising rapidly in the short term.

As the "pioneer team," what hidden drivers are behind the market, and how will the future market develop? Just as everyone is discussing, the market seems to hide more surprises and hidden dangers.

II. Commodity Price Surge: Inflation Expectations and Liquidity Driven

The surge in commodity prices is not just steel taking off alone, but the drivers behind it, inflation expectations and loose liquidity, are like a dual-core engine, pushing commodities to a high position. From the data, this year, the central banks of various countries are not joking about "flooding."

Monetary easing policies are prevalent worldwide, with liquidity directly full, and cash flows are rolling in the market. Some commodities have become the target of the "cash flood," with steel, copper, crude oil, and others being "carried away." It can be said that this wave of the market is not just a game of supply and demand but also a "rise by force" caused by "too much money with nowhere to go."

The central bank's "flooding" has become a catalyst for the surge in commodity prices. Especially when dealing with economic downward pressure, governments and central banks of various countries issue government bonds on one hand and relax monetary policy on the other, and market liquidity instantly explodes.

Taking China as an example, the credit scale in the first half of 2024 once broke through 20 trillion yuan, which can be described as "having money and being willful." Once liquidity is abundant, funds must find an outlet, and commodities have become the most attractive target.

As a result, inflation expectations are rapidly pushed up, and investors, seeing the momentum of rising prices, also rush into the market to grab shares, with "buy, buy, buy" becoming the main theme of the market. The influx of funds in the short term has made commodity prices uncontrollable like a "wild horse that has broken its reins."The conflict arises because inflation expectations and actual inflation are not always synchronized. Although loose liquidity has driven up commodity prices, many investors are still worried about how far this market trend can go. The surge in prices is merely a product of inflation expectations and has not actually led to a real increase in demand.

The massive buying behavior in the short term is more of a bet on the uncertainty of the future market. Central banks release liquidity, but commodity prices may not fully match the real economic performance, leading to a certain bubble in the market. As a result, the higher the prices rise, the hotter inflation expectations seem to be, but the contradiction between actual supply and demand becomes more pronounced.

In this market trend, liquidity and inflation expectations have become the driving forces, but the balance between the two is destined to be a game. So how long can liquidity continue to support this "rocket market"? Will the market see a "correction after a surge"? While everyone is cheering for the continued rise in prices, have the risk factors behind this already been sown?

III. Global Commodity Linkage: Price Recovery is Not an Isolated Phenomenon

Steel, copper, aluminum, crude oil... These commodity prices have recently surged one after another, as if they had "agreed to fly together." The crazy rise in domestic steel prices is just the tip of the iceberg, and commodity prices in the global market are generally warming up. This wave of the market trend is "better to share joy than to enjoy alone," which makes people sigh: the world is a "price increase chessboard."

The "linkage effect" of the global commodity market is one of the behind-the-scenes drivers of this market trend. Data shows that in the international market, the copper price on the London Metal Exchange (LME) has risen by more than 30% since the beginning of the year, and the aluminum price has also increased by nearly 20%. Crude oil has rebounded all the way from the bottom, and the Brent crude oil price once broke through the $90 mark.

Why have global commodity prices collectively soared like they are "cheating"? There are multiple drivers behind this. On the one hand, supply chain issues have become the key to global price linkage. Logistics issues this year, supply chain disruptions caused by the pandemic, and geopolitical factors have led to a shortage of global raw material supplies, and the pressure on the supply side has increased dramatically.

Under the shortage of supply, commodity prices have risen, especially for core raw materials such as steel and copper in infrastructure and manufacturing, where price increases are more obvious. On the other hand, the global economic recovery has driven the demand for commodities.

With the restart of the European and American economies, the demand for raw materials in manufacturing, construction, and transportation has surged, leading to a "you rise, I rise" situation in global commodity prices, and no one wants to be left behind.

The price increase brought about by market linkage may also trigger a "butterfly effect." On one side, there is a collective rise in global commodity prices, while on the other side, there are concerns about inflation in various countries. The rise in raw material costs will be directly transmitted to consumer prices, further increasing inflationary pressure. Central banks in Europe and America are already paying attention to inflation expectations, and the Asian market also faces the threat of imported inflation.Paradoxically, while central banks are concerned about the continued surge in prices, they cannot let go of the "cheese" of economic recovery. Like dancers on a tightrope, the market needs balance, and any slight deviation in central bank policy could lead to new fluctuations in the entire commodity market.

The interlinked effect of global prices turns the commodity market into a "multi-party game," with both demand-driven increases and supply shortages pushing prices up. Price changes in the global market can affect everything, and behind the "rocket-like" steel market, there are even greater forces at play.

So, can the commodity market continue to "rise together"? How will global policies respond to this wave of price frenzy?

IV. Will the commodity market continue to be hot?

Commodity prices have "soared" in the short term, but whether the future trend can continue is a matter of debate in the market. One faction believes that the price rebound is a "catch-up" from the low point of the past three years, and the market will enter a new bull market. Another faction is worried that behind the short-term explosion, the real demand has not kept up, and the future may be "too high to bear the cold."

Steel prices have returned to the level of three years ago in just a few days, but the downstream market's ability to digest is limited. If demand cannot keep up, prices may find it difficult to continue to "take off." Data shows that some domestic steel traders have started to worry about inventory backlogs, and steel prices have already fluctuated after a short-term lift. The future market trend seems to be full of uncertainty.

Moreover, the future trend of the commodity market is also affected by multiple factors such as global policies, the pace of economic recovery, and geopolitical issues. On the one hand, central banks are becoming more and more sensitive to inflation, and global monetary policy may face tightening.

If central banks start to "turn off the tap" and reduce liquidity, the funds in the market will gradually decrease, and with it, commodity prices will face downward pressure. On the other hand, the global economic recovery process still has uncertainties, and uncertainties persist.

If the economic recovery slows down, the demand for commodities may not keep up, and prices will face adjustment pressure. International institutions predict that the growth rate of global commodity prices may slow down by 2025, which also makes people cautious about the future market prospects.

Investors in this wave of the market also need to be alert to the coexistence of risks and opportunities. Short-term price fluctuations may mean profit space, but blindly following the trend and chasing increases may face the risk of being stuck at high positions. Especially for some leveraged funds, the violent fluctuations in commodities may amplify profits, but they may also cause huge losses.If the future market experiences a "correction after a surge," the risk of market pullback will also increase. Some people say that the commodity market is a "roller coaster," capable of riding the waves and also capable of sudden downturns. In this "roller coaster," seizing opportunities or avoiding risks will determine investors' gains and losses in the future market.