Copper and Cocoa Prices Skyrocket Amid Global Supply Shortages

In recent months, the commodities market has captured the attention of traders and analysts alike, experiencing a surge that has seen significant profits and opportunities.

by Faruk Imamovic
SHARE
Copper and Cocoa Prices Skyrocket Amid Global Supply Shortages
© Getty Images/Scott Olson

In recent months, the commodities market has captured the attention of traders and analysts alike, experiencing a surge that has seen significant profits and opportunities. Darrell Martin, CEO of Apex Trader Funding, expressed to Business Insider the unique position traders find themselves in due to the current market dynamics.

"The market volatility created by these big moves creates a ton of opportunity," Martin stated, highlighting the intraday volatility that offers lucrative chances for traders to generate income. This bustling activity has propelled the commodity-based S&P GSCI, a key indicator of commodities' performance, to a 12.8% increase this year—surpassing the S&P 500's 7% gain significantly.

Supply Shortages and Economic Rebounds

A critical driver of the current commodities rally is the noticeable shortage in inventory across various sectors. For example, copper and cocoa are experiencing heightened demands against limited supplies.

A recent report from Bank of America underscores the severity of the situation with copper, pointing out that "Tight copper mine supply is increasingly constraining refined production." They predict a substantial rise in copper prices, forecasting a 27% increase by 2026 to $5.44 per pound, marking a significant upturn from its current price of $4.28.

The narrative is similar for cocoa, which has seen its price skyrocket due to droughts and poor harvests, with cocoa futures climbing an astonishing 256% over the past year. These price movements are not just reflections of current market dynamics but also potential indicators of future trends exacerbated by climate change, affecting essential commodities like coffee beans, which are already seeing a dramatic increase in value.

Global Dynamics Influencing Commodities Broader macroeconomic factors, including sticky inflation and geopolitical uncertainties, are also shaping the commodities market. Particularly notable is the performance of gold, which has increased nearly 15% this year.

According to Martin, "Gold is always lagging behind. And when it finally does go, it pops big." Indeed, gold reached a new all-time high of $2,424 per ounce recently, driven by central bank purchases and ongoing global instabilities.

Experts like Ed Yardeni and David Rosenberg see continued upward trends for gold, with projections of up to 50% growth in the coming years. Similarly, if tensions in the Middle East increase, Brent oil could reach $100 a barrel, underscoring the impact of geopolitical events on commodity prices.

Yet, the surge in commodities might have a double-edged sword effect, with rising prices potentially fuelling another round of inflation, thus complicating the Federal Reserve's decisions on interest rates. Jeff Currie of Carlyle notes the strategic advantage of commodities in the current business cycle, emphasizing, "Commodities are always the best play at this point in the business cycle for that precise reason."

SHARE