An analysis of January 2024 purchasing managers’ index (PMI) data by Macquarie Group has suggested that industrial commodities may be poised for a period of bullish growth. Macquarie’s analysis indicates that the global industrial cycle may be approaching a turning point after a series of recount lows.
The Sydney-based diversified financial solution provider found that new global manufacturing orders saw a 12% month-over-month increase and hit 49.8, contradicting prior expectations of a policy-induced downturn. Purchasing manager index data is a critical indicator of the manufacturing sector’s health. An above-50 PMI indicates expansion in the manufacturing sector while a below-50 score points to contraction.
However, American goods demand data exhibited signs of a potential re-acceleration and pointed to a soft landing or, at the very least, an end to economic stagnation.
According to Macquarie Group’s head of commodities strategy Marcus Garvey, commodity prices have been pressured despite the indications of bullish growth since the U.S. Bureau of Labor Statistics’ job summary report pointed to a stronger-than-expected employment situation in the country. This report caused treasury yields and the dollar’s value to rise, all traditional indications of a bearish market for metals. The Bloomberg Commodity (BCOM) spot price index was hovering slightly over the December low of 465 in the wake of the employment report.
However, the Bank of America predicts a bullish turn for metals and notes that aluminum is highly likely to see an upside. Macquarie Group’s Garvey says it seems improbable that there will be a drop in end demand any time soon, indicating a trend of gradual growth in industrial commodities demand. He notes that commodity prices have maintained a much more consistent relationship with worldwide growth than with foreign exchange.
If increased global industrial activity causes commodity prices to rise, Garvey said, it could self-limit goods inflation and hamper central banks’ ability to ease measures further. Still, he noted, now was the opportune moment to invest in commodities, especially in sectors whose market fundamentals are steady or are likely to experience rapid strengthening.
Bank of America analysis found that the aluminum market’s market deficit will hover at around 2.4% until next year compared to the 4% annual growth rate seen from 2011 to 2017. With consumption growth predicted to average at 4% per year until the end of the decade, the market’s deficit outlook appears even more certain.
Although Russian sanctions haven’t impacted London Metal Exchange trading significantly, investors remain concerned about stricter sanctions with the potential to reshape market dynamics. As the fears of market disruption play out, precious metals extraction companies such as Freeport-McMoRan Inc. (NYSE: FCX) could see increased investor interest.
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