A Major Commodity Boom Is About To Be Unleashed

Mar. 13, 2021 8:56 AM ETCSCCF, SBSW, SBYSF, VALE, DJP, DBC, GSG, PDBC, USCI, CS:CA80 Comments
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  • Commodities boosted by stimulus programs and balance sheet expansions.
  • Structural shift in commodities due to China growth.
  • Top 3 beneficiaries are: Capstone Mining, Vale and Sibanye-Stillwater.

It is no secret that commodities have been doing well since the bottom of the crisis last year. Trillions of dollars have been printed all over the world, deficits are ballooning at an increasing pace, and we've only just started. Last week, a new $1.9 trillion stimulus package was signed by President Joe Biden to provide relief to the U.S. citizens. All of these measures are extremely inflationary and will push up commodities. But there is more.

What many people don't appreciate yet is that the crisis has also created a huge shift in the global economy in favour of China.

First off, China once had a services trade deficit which was mainly attributed to tourism. That deficit has completely vanished now due to the lockdowns as Chinese tourists need to stay at home. China now has a massive trade surplus which will be used for more productive endeavours like construction, infrastructure and manufacturing. On top of that, China is increasingly pulling money out of U.S. Treasury bonds as reported by the U.S. Treasury.

China current accountSecond, China is the largest consumer of commodities in the world and it has very little copper, nickel, iron ore, oil, etc. It will need to import all of these commodities and we are seeing signs that this is happening. Dry bulk shipping rates have soared in the last few months and confirm that the bull market in commodities has started.

Dry bulk ratesFinally, latest China power consumption data also evidences that China is growing at a rapid pace. China power consumption grew by 23% in the first two months of 2021. Charts below have been compiled by Correlation Economics.

China power consumptionChina power consumption and GDPThe CRB index shows that we had a rebound from last year's low and we are on track to ride a new bull market cycle upwards.

CRB Index The top

This article was written by

Katchum profile picture
Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a competitor of Dow Chemical. Today, he works as a regulatory compliance consultant at J&J, but his real passion will stay in macro-economics. His experience in the chemical and pharmaceutical industry allows him to monitor the economy from a process engineering standpoint, analyzing macro-economic charts, correlations and trends.

Disclosure: I am/we are long CSFFF, SBSW, VALE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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