China's commodity market embraces Year of the Ox with hiking price

Yesterday, Chinese commodity market led by nonferrous metals and chemicals soared on the first working day back from the Chinese Lunar Year holiday. In the futures market, PSF and cotton respectively rose by 590yuan/mt and 290yuan/mt (see the screenshot below). In fact, the two products had gained big increment before the holiday. Starting from Feb 4 (trades gradually stagnated one week before the Chinese Lunar New Year Eve), the increase has been 1,010yuan/mt and 1,090yuan/mt respectively.

Although VSF is not traded in futures market, Sanyou Chemical and Zhongtai Chemical in stock market both hit the up limit. In the meantime, medium and high-grade VSF plants take the lead in raising offers to 15,000yuan/mt, which were mostly around 13,800yuan/mt before the holiday. The higher price has risen to 15,300yuan/mt and some trades start to be concluded.

The surging commodities are largely contributed by two factors. 1. The inflection point of the COVID-19 is basically determined. The number of new cases has fluctuated downward and large-scale vaccination is underway, which provides strong confidence to the recovery of downstream demand. 2. Currency over issuance has aroused worries over inflation worldwide. The FOMC released the minutes of the policy meeting from January 26 to 27 on Wednesday (Feb 17), reiterating that it will maintain loose monetary policy. This means that the benchmark short-term borrowing rates will be around zero and a monthly asset purchase scale of at least $120 billion will be maintained. In the discussion on the Fed’s asset purchase plan and interest rate policy, the minutes of the meeting pointed out that there is no big possibility of change in the short term, laying a strong basis for hiking commodities after the Chinese Lunar New Year.