Copper hit its highest level in more than a decade.
The widely used commodity traded above $4.54 a pound on Thursday, a level not seen since March 2011. It is often viewed as a barometer of economic demand given its use in a broad number of industrial applications.
But, that could spell trouble for company bottom lines and the pass-through impact on the consumer. Already, a number of executives have warned of rising costs this earnings season, including companies as diverse as Caterpillar, Molson Coors and Kraft Heinz. Rising inflationary pressures have been on investors’ radar, though the Federal Reserve has so far chalked up the increases as short term.
“The question is ‘to Fed or not to Fed.’ And if you believe that the Fed is right and that all these costs are transitory, well then this is a short-term blip. If not and then the Fed could be behind the curve and the economy is really ratcheting inflation and these commodity costs are here to stay, then this is a bigger issue for those companies that do not have pricing power,” John Petrides, portfolio manager at Tocqueville Asset Management, told CNBC’s “Trading Nation” on Thursday.
Fed Chair Jerome Powell said Wednesday that inflation would rise over the next few months, but noted that “one-time” price hikes would only have “transitory effects on inflation.” The central bank kept rates unchanged to steer the U.S. economy through to a full recovery from the coronavirus pandemic.
Still, Petrides said increased commodity prices should self-correct as higher demand boosts production.
“The higher the price goes, the more production. The higher prices will all ultimately correct themselves because it will lead to more production, more planting, which will eventually lead to oversupplies, but I think we’re still early in that game,” he said.
Nancy Tengler, chief investment officer at Laffer Tengler Investments, has her eye on higher commodity prices but will not grow concerned over rising inflation until she sees increases in wages.
“A commodity inflationary environment is important for inflation, but really the biggest input is wage inflation, and we are a little bit concerned about that,” Tengler said during the same interview. “If you look back to the ’70s and early ’80s when we really saw rampant inflation, there were a lot of cost-of-living adjustments in contracts that unions had so it just created a virtual spiral up in inflation because the requirements to raise wages was real.”
She sees the rise in copper and other commodities as a positive so far and her firm has adjusted its strategy to take advantage of demand.
“We think this commodity supercycle is driven by growth and a change in the narrative from traditional energy to green energy. We believe in it so much we developed a strategy around President Biden’s green energy and planetary de-carbonization,” said Tengler. “The demand for copper is going to continue.”
Copper has risen 27% in 2021. Prices are up 12% this month.
