Commodities, as key inputs in manufacturing and consumer staples, can be leading indicators of emerging inflation and exposure to them can serve to potentially hedge inflation risks.

Source: Target 2024 weights. Market Access, index issuer websites: RICI, Bloomberg Commodity Index, UBS CMCI, S&P GSCI. RICI - Rogers International Commodity Index (RICIGLTR), BCOM – Bloomberg Commodity index (BCOMTR), UBS CMCI Constant Maturity Commodity Index (CMCITR), S&P GSCI - S&P GSCI Index (SPGCGPTR).

RICI index background

James B. Rogers, Jr. designed the index in the late 1990s. His focus was to create an index that reflected global consumption of commodities.

This global focus differentiates the RICI from other commodity indices, meaning that it includes commodities like rice, rubber, white sugar and lumber.

There are 11 commodities in the RICI that are not included in the other three comparison benchmarks. They represent 9.05% of the index target weights.

Source: Data as of 28 March 2024. Market Access, Bloomberg.

Commodity in focus – Copper

It is a good time to look at some of the factors that have been driving the copper price up recently and that may be important in the months ahead.

First, there is evidence of a pick up in manufacturing activity, not just in China but more broadly. The J.P. Morgan Global Manufacturing PMI® data⁽¹⁾ showed that in March the rate of growth in global manufacturing production accelerated to its fastest rate since June 2022 with the strengthening of new order inflows. India led the global manufacturing output growth rankings in March with strong rates of expansion in Indonesia and Brazil, and growth in US and China hitting 22-month and 10-month highs respectively. Some forward-looking indicators are also positive: inflows of new business rose globally for a fifth month in a row and companies' expectations of output in the coming year rose to a nine-month high⁽²⁾.

There is global capex boom with governments and companies increasing expenditure in metal-intensive areas. This includes defence, clean energy systems, infrastructure, including power grid enhancements. Within this mix, there is the rise of artificial intelligence, which like the crypto space, is electricity intensive. There are a range of estimates as to the copper requirements linked to the uplift in demand for electricity from data centres – BMO uses the estimate of 5 tonnes of copper per MW of processing power⁽³⁾. The chief economist at Trafigura, the commodity trading house, has suggested that copper linked to AI and data centres could add up to one million tonnes of demand by 2030; this would come in a market where the projected deficit is 4 to 5 million tonnes in 2030⁽⁴⁾.

Supply side issues are a further factor providing support for the copper price. Two developments in December 2023 were significant. The first related to local opposition in Panama to a First Quantum Minerals’ Cobre Panama copper mine that led to the mining company being forced to shut down the mine. It produced 330,863 tonnes of copper in 2023(5) representing about 1.5% of global production. In the second case, AngloAmerican announced that it was putting one of the two processing plants at the Los Bronces copper mine into care and maintenance to save on operating costs while it deals with challenging mining conditions at the mine and, secondly, reducing production at Quellaveco in Peru because of some redesign work. As a result, it reduced its copper production guidance by 7% to 730,000-790,000 tonnes for 2024⁽⁶⁾.

With some investors believing that we are at the peak of the interest rate cycle and favourable macro tailwinds, we could see the beginning of restocking and demand for metals such as copper. One gauge of sentiment, including investor interest, is to look at the Commitments of Traders Reports published by the Commodity Futures Trading Commission (CFTC) for data on U.S. exchanges and the London Metal Exchange (LME). The data for copper shows a pick up in long and net long positioning by investors since the end of last year. On the LME, investment fund long positions reached 70,891 contracts in the week to 28 March compared to 46,219 in the week to 29 December 2023⁽⁷⁾, while in the case of the CME, money manager long copper positions were 92,986 contacts in the week to 2 April compared to 59,378 contracts in the week to 26 December 2023⁽⁸⁾.

• [1] S&P Global, J.P. Morgan Global Manufacturing PMI®, Global manufacturing output growth strengthens as new orders rise and employment stabilises, 2 April 2024 https://www.pmi.spglobal.com/Public/Home/PressRelease/cce34d901a8e410290f0236acc3481c0
• [2] S&P Global, Global economic expansion gains momentum in March as PMI climbs to nine-month high, 4 April 2024, https://www.spglobal.com/marketintelligence/en/mi/research-analysis/global-economic-expansion-gains-momentum-in-march-Apr24.html
• [3] BMO, Metal Matters, Beginning to Look a Bit Better, 28 March 2024, https://capitalmarkets.bmo.com/en/news-insights/research-strategy/global-metals-mining/metal-matters-beginning-to-look-a-bit-better/
• [4] Reuters, AI could add 1 million tons to copper demand by 2030, says Trafigura, 8 April 2024, https://www.reuters.com/markets/commodities/ai-could-add-1-million-tons-copper-demand-by-2030-says-trafigura-2024-04-08/
• [5] First Quantum Minerals, Cobre Panama Production Statistics, https://www.first-quantum.com/English/our-operations/operating-mines/cobre-panama/production-statistics/default.aspx
• [6] AngloAmerican, Investor Update, 8 December 2023, https://www.angloamerican.com/~/media/Files/A/Anglo-American-Group-v5/PLC/investors/reports/2023-investor-update-script.pdf https://www.angloamerican.com/~/media/Files/A/Anglo-American-Group-v5/PLC/investors/reports/investor-update-presentation-2023.pdf
• [7] LME, https://www.lme.com/en/Market-data/Reports-and-data/Commitments-of-traders/Copper
• [8] CFTC, https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

key features