japanja
Metals – anything but rusty

Metals – anything but rusty

07-05-2021 | 月次アウトルック
Commodity prices can continue to rise on a string of favorable factors, says strategist Peter van der Welle.
  • Peter van der Welle
    Peter
    van der Welle
    Strategist Global Macro team

Speed read

  • Multi-asset portfolio keeps overweight as commodities rise 35%
  • Macro factors, momentum, valuation and sentiment favor asset class
  • Green investments are positive but China may become a headwind

The asset class has risen 35% in euro terms over the past 12 months, justifying the overweight position that Robeco took in commodities for its multi-asset portfolio this time last year.

That overweight will now be continued due to a combination of positive factors for commodities as the world returns to normality following the pandemic, says Van der Welle, strategist with the multi-asset team.

“Deploying our asset allocation framework factors of macroeconomic developments, momentum, valuation and sentiment, we conclude that commodities in general – and metals in particular – have become anything but rusty,” he says. “Instead, commodities still shine, and continue to warrant a portfolio overweight in the near to medium term.”

“The momentum effect, where price returns follow previous price performance, can be seen everywhere in the multi-asset space. Commodity markets have been no exception: they are clearly enjoying strong and positive momentum at this juncture, seeing the strongest price gains on short one-month momentum across the multi-asset universe.”

“Strong short-term momentum gains such as those observed in metals such as copper and aluminum likely signal further price gains in the near future.”

Climate Series – don’t miss a thing
Climate Series – don’t miss a thing
Subscribe
Momentum has been strong in commodities, ranging from lead and aluminum to soy beans, and from cotton to oil. Source: Refinitiv Datastream, Robeco

Let’s roll!

The valuation of commodities has become more favorable, as can be seen in a metric commonly used to value them – the roll yield. This is one of the three components of commodity returns, next to spot price movements and the cost of carry. Technically, the roll return is defined as the change in the futures price minus the change in the spot price.

Roll yields stem from the shape of the commodity futures curve. They are positive if the futures curve of a commodity is in backwardation, meaning that a longer-dated futures contract converges to the higher spot price upon expiry. For a buy-and-hold investor who keeps rolling over their commodity futures exposure, this simply boils down to buying low and selling high.

The reverse scenario occurs when the futures curve is in contango, which means a longer-dated futures price converges to a lower spot price upon expiry. This has often been a drag on total commodity returns in the past decade as well as on those of some commodities last year.

Post-pandemic expansion

“Looking at the current commodities futures curves, backwardation is the name of the game, implying positive roll returns so long as the shape of the curve remains the same,” says Van der Welle. “This especially holds for metals such as copper.”

“The current backwardation of around half of the commodity futures curves reflects supply-side pressures in a global economy that is facing higher commodity demand in the post-pandemic expansion phase. Backwardation implies higher spot commodity prices are needed to incentivize more capex and bring new supply forward.”

“It is not only the typical cyclical forces that one should expect in a early expansion phase of the business cycle that are at play here, such as increased mobility, pent-up travel demand and elevated goods consumption. The USD 2.25 trillion American Jobs Plan, for example, will give a more structural impetus to commodity-intensive investments in roads, bridges and railways in the coming years.”

Green investments boost

The Paris Agreement goal of achieving net zero emissions by 2050 also bodes well for demand for the commodities used in building green infrastructure, particularly copper, aluminum and lithium, Van der Welle says. Lithium is the key component in electic car batteries.

“The knife of decarbonization cuts both ways here, as the supply side is also affected by the Paris 2050 climate ambition,” he says. “Given the high energy intensity of aluminum production and China’s desire for emissions to peak before 2030, production levels could fall globally precisely at a time when higher levels are needed.”

“Another macroeconomic element that keeps us bullish on commodities is our moderately bearish view on the US dollar. Commodities are largely priced in dollars, so a weaker dollar typically leads to higher commodity prices. Also, the reopening of the European economy, which is a net energy importer, supports commodity demand.”

Use as an inflation hedge

Turning to sentiment, the rising inflation expected as the global economy expands again could be another tailwind, Van der Welle says. “Inflation risk ranks highest on the worry list for fund managers,” he says. “With the search for inflation hedges top of mind, commodities have seen inflows, as they are generally fairly accurate inflation hedges.”

However, China could prove to be a headwind. “Although we see the risks for the asset class as skewed to the upside, there are downside risks,” Van der Welle says. “The most prevalent is that the monetary policy tightening stance in China to force deleveraging in certain overheating sectors could inhibit commodity demand.”

“While the marginal demand may very well not be coming from China in the second half of this year given the huge policy stimulus elsewhere, China still matters for commodities. A deceleration in Chinese money supply growth has typically been followed by slower commodity price appreciation a few quarters later.”

“In all, while equity prices run a larger risk of exhaustion in the second leg of the reflation trade, as much of future earnings upside has been discounted, commodity prices must continually balance today’s supply and demand. This makes them perhaps even better suited as a risk-on proxy for the second half of 2021, given continuing tightness in physical markets as the economic reopening progresses.”

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会