One of the biggest commodities booms in decades is looking for a fresh reason to power higher.

Markets from copper to oil to corn surged recently as monetary stimulus and a recovery from the pandemic tightened supplies, fueling a debate about whether raw materials are in a new supercycle. But the rally is now wavering on worries about faster inflation, Federal Reserve hints at easing stimulus and China’s warning over measures to cool price spikes.

Commodities slid across the board on Wednesday on those concerns, in a wild day for markets that also saw huge swings in cryptocurrencies. Yet many reasons for higher prices -- from a stronger global economy to a coming wave of green spending -- are still intact. Plus, a big shift in monetary policy may be unlikely with economies in an uncertain stage of recovery.

“The commodities bull run is definitely not done yet,” said Eric Liu, head of trading at Chinese copper trader ASK Resources. “Every country is grappling with rising inflation, but as long as they don’t actually tighten monetary and fiscal policies, commodity prices can hardly cool off.”

There was a steadier tone on Thursday, with base metals mixed and grains markets edging higher, although iron ore futures fell and Brent crude extended declines. The oil market has been rattled by the prospect of a deal to end sanctions on Iran’s exports, while the coronavirus continues to hurt Indian demand.

RALLY COOLS
A Bloomberg gauge of spot commodities prices slid 1.8% on Wednesday as minutes of the Fed’s April meeting showed some policymakers were open to a debate on tapering at future meetings. Also, China issued a fresh warning of measures to curb rising prices, saying more needs to be done to prevent rising costs from being passed through to consumers.

The stronger rhetoric risks weighing on materials from copper to iron-ore, which reached record highs this month on surging demand. Top commodities user China has also been buying huge amounts of crops, which helped push grains markets to multiyear highs, before the rally stalled.

Recent declines are “partly driven by a reversal of macroeconomic sentiment in the world, as some of the fundamental factors that helped push up asset prices eased,” said Zhang Chenfeng, a researcher at Chinese commodity hedge fund Shanghai Chaos Investment.

BULLISH REASONS?
With markets looking for fresh drivers to resume the rally, energy bulls can point to the coming US flying and driving seasons as lockdowns ease, as well as solid demand from Asia. Crops need almost perfect weather this summer in the US and later in Brazil and Argentina for harvests to meet world demand, so any adverse weather could again cause price spikes.

Metals have benefited from a rush to replenish manufacturing supply chains and the prospect of years of green spending, which helped send economic bellwether copper above $10 700 a ton this month. Whether prices go higher partly depends on a clearer picture of infrastructure spending and how long loose monetary policies will last.

Wall Street has issued bullish outlooks. Citigroup sees copper heading past $12 000 in the coming months. Major traders Glencore and Trafigura say prices could jump much higher to spur enough supply to meet future demand from renewables and electric cars.

“I’m certainly in the camp of this being a healthy pause” for commodities, said Daniel Hynes, a strategist at Australia & New Zealand Banking Group. “Any disappointing data or headwinds were always going to see some profit-taking, and I think the whole sector still has some upside.”