Wednesday, 12 May 2021

Commodity Super Bull Run: Part 1/2

Covid-19 pandemic not only sent the price of medical gloves to the sky, it has also resulted in the surge of almost all commodity price.

As we all know, price is the balance between supply and demand. 

In the early stage of the pandemic, demand was expected to drop drastically as there was worldwide lockdown in which movement was restricted and economy came to a halt.

There was fear of unknown at that time and commodities were sold down panically.

However, China as the world's economy powerhouse, managed to contain the pandemic swiftly. Its economy activities rebounded strongly from Q2 of 2020 which resulted in the recovery of demand.

Furthermore, the pandemic has increased the demand of electronic devices, home appliances and furniture etc as many people started to work and study from home.

Low interest rate and various government stimulus packages across the world also encouraged spending on groceries, cars and real properties.

After a shock in early stage, demand slowly crawled back.

As mining, agricultural and manufacturing activities slowed down due to lockdowns, the supply of commodities dropped.

When the demand is higher than pre-Covid level and the supply is significantly lower, the mismatch between supply-demand widens and commodity price shoots up.

Crude Oil

One of the most "famous" commodity is the crude oil. At one stage US WTI crude oil price fell to negative level in Apr20 in which sellers pay buyers to buy their oil. 

Brent crude oil price fell to a low of USD20/Bbl in Apr20 but has since recovered steadily to pre-Covid level of USD60-70/Bbl, as shown in the 10-year price chart below.

       Brent Oil (USD/Bbl) 10-years chart

Unlike many other commodities which have reached historical high or multiple years high, Brent oil is still far from its 10-year high of USD120/Bbl in 2011 and historical high of USD140/Bbl achieved in 2008.

Brent oil is not expected to go above USD100/Bbl anyway. To stay between USD60-70 in year 2021 is good enough while reaching 2018's high of USD80 will be a bonus.

A drop below USD60 is very possible though, when OPEC+ decides to ease their production cut.

However, when travel ban is lifted across the globe, crude oil demand should pick up fast.

Direct beneficiaries of high crude oil price will certainly be upstream Oil & Gas companies such as Hibiscus, Reach & DNEX.

Mid stream players will benefit indirectly from more contracts awarded due to increase in O&G upstream activities.

Recent oil price recovery is the fastest in the history as shown in line chart below.

Crude Palm Oil

The price surge of crude palm oil can be described in one word: unbelievable. 

Decline in CPO production and expected higher demand from two of the world's largest CPO importer China & India play a part in the price rally.

       Palm Oil (MYR/T) 10-years chart

From below RM2,000/T exactly one year ago, palm oil price has surged to historical high of RM4,500/T now. Its previous historical high was at ~RM4,000/T in 2008.

There are many upstream oil palm plantation companies listed in Bursa Malaysia. Most of them have already enjoyed a good year in 2020. If the CPO price stays above RM4,000, then surely year 2021 will be even a better year.

The question is, how long can the CPO price stay above RM4,000/T?

Earlier in the year industry experts have forecast CPO price to range between RM3,320 & RM4,113 per tonne in 2021, and will soften in the second half of the year.

Despite the spike in CPO price, plantation stocks seem to be not that popular among investors, perhaps the attention has been hijacked by gloves stocks and then tech stocks.

Increasing CPO price might not guarantee increasing profit for a plantation company. It depends on the volume of FFB (Fresh Fruit Bunch) & CPO produced and sold.

The lack of manpower, bad weather and unfavourable age profile of oil palm trees will negatively affect the production of FFB.

If the average CPO price increases by 20% but the volume sold decreases by 20%, then there will be no significant increase in profit.

Nevertheless, plantation companies will have good days ahead, with lots of cash too.


As a competitor to palm oil, the price of soybeans also staged a sudden surge since mid 2020 to come close to its historical high.

       Soybeans (USD/Bu) 10-years chart


Soybeans and corns are important crops to the US. The price chart of both commodities are quite similar in which corn price also threaten to break its historical high.

Corn price has steeper rise in the year of 2021 as its price has gained more than 50% YTD compared to soybean's 25%.

       Corn (USD/Bu) 10-years chart

Apart from being used as food ingredient, soybeans and corns are widely used as animal feeds.

One of the important reasons of their price surge is due to sudden surge in demand from China who is expected to recover fully from African Swine Fever in 2021. China has lost almost 50% of its swine population to African Swine Fever since 2018.

High soybeans and corn price is no good news to poultry farming industry in Malaysia as both are used as chicken feeds and make up around 70% of the cost.

Thus, LHI, Lay Hong, Teo Seng, LTKM, PWF, CAB and QL will surely face increasing cost pressure.


Once an important commodity for Malaysia, rubber plantation is not that popular nowadays. Thailand, Indonesia and Vietnam are the 3 largest natural rubber producing countries now.

       Rubber (JPY/Kg) 10-years chart

As we can see from the price chart, rubber price has increased more than 100% from its low in mid 2020. Current price of JPY250/Kg is higher than year 2018 & 2019.

Again, strong demand from China is cited as the main reason for the price increase.

There are a few listed companies with rubber plantation but I don't think the profit contribution will be of any significance. 

The cost of manufacturing rubber gloves will be higher though.


Naphtha is a liquid petroleum derived from crude oil so its price tends to follow crude oil price. One of its many uses is as raw material of plastics.

       Naphtha (USD/T) 10-years chart

Without exception, the price of Naphtha recovered from its low of USD150/T in mid 2020 to USD600/T now.

Current level is slightly higher than 2019's average of USD500/T but still lower than 2018's peak of USD700/T.

LCTitan uses Naphtha as its main raw material to produce resins used in plastic products manufacturing (HDPE, LDPE, PP) and nitrile gloves (Butadiene).

While LCTitan might not enjoy the low Naphtha price environment for too long, plastic products manufacturers will not be able to enjoy low resins price for long too.

Companies involved in plastic packaging include Scientex, Thong Guan, BPPlas, SCGM, SLP, Tomypak etc while companies in plastic injection moulding include ATAIMS, VS, SKPRes, EG, Geshen, PIE etc.

Rising resin price will reduce their profit margin unless they can pass the cost to their customers.

       LLDPE price chart (CNY)


Quietly, lumber or timber price surged almost 6x from USD260 in Apr20 to USD1,600 in May21. Will logging companies in Malaysia receive a windfall?

       Lumber (USD/1000 board feet) 10-years chart

Listed logging companies that I know include Ta Ann, Timwell, WTK, Subur, JTiasa, BTM, Minho and GPharos.

It seems like only Timwell is pure upstream player while the others have other businesses such as downstream wood manufacturing, oil palm plantation, property development etc.

From a quick check on their most recent financial results, I think most of them registered loss in timber division even though lumber price was already very high in the second half of 2020. 

The prospect given on timber industry from most companies was quite negative.

Now lumber price has jumped even higher in Q2 of calendar year 2021. Can those companies do well this time? 

Ta Ann, WTK, Subur & JTiasa have both oil palm plantation and timber business. They must be very happy to see both commodity price breaking new high.


From the price chart below, it seems like the price of particleboard & fiberboard also rise significantly in the past one year.

       Hardboard, Particleboard & Fiberboard Products 10-years chart

Price chart of plywood also shows similar trend as below.

       Plywood 10-years chart

However, medium density fiberboard (MDF) does not seem to rise that much according to the chart of MDF price below.

       MDF 10-years chart

Listed particleboard/MDF manufacturing companies include Evergreen, Hevea, Mieco, Dominant etc, while FLBhd, JTiasa & Annum (previously Cymao) etc are involved in plywood manufacturing.

Their raw material cost should be higher due to higher lumber price but they can sell their products at higher price as well.

The share price of those logging, plywood & particleboard companies have started to go up in the past 1-2 weeks, only to succumb to recent fall in general market.

Will they resume their upward movement when the fear of MCO 3.0 starts to wane?

For downstream furniture companies such as Latitude, Pohuat, Liihen, Homeriz, Jaycorp, Wegmans & Spring, their raw material cost will be higher as well. 

Since the demand of furniture seems to be high especially in the US, they may pass some cost to their customers.

Wood Pulp

Wood pulp is used to make paper. Its price has dropped 35% from its peak in early 2019 to reach its low in the end of 2019.

Its price stays low throughout 2020 and started to move upwards since the beginning of 2021.

       Wood Pulp 10-years chart

Beneficiaries of low wood pulp price include NTPM, Wangzng, and paper packaging companies such as Muda, Master, PPHB, Orna and Boxpak. 

Paper & plastic packaging also contribute slightly to Dnonce, Magni & MFCB.

Nevertheless, recent recovery in wood pulp price might add some pressure to those companies. Hopefully it will not shoot up like other commodity and can stay below 2016's level.

When raw material price is high, logically we can expect price increase in the end products. Isn't it inflation?

I just share my view on current commodity price movement and write it down here so that I can refer to it in the future if needed.

I might be wrong and the price charts here might not be accurate.


  1. BDI index measuring dry bulk material transportation price also has been moving up a lot in 2021 YTD. I am considering to pick up some Maybulk.

    1. Yeah, i picked up some when it's stock price dived today :)
      It's stock price may again plunge tomorrow together with all steel stocks due to poor sentiment now..., but i am certain it's coming Q1'21 quarterly result will see improvement YoY and QoQ. It's Q2'21 earnings will be even better if the current BDI index can sustain at high level. In addition, it's vessels may see the reversal of impairment in quarters to come since the charter rate has improved a lot.

  2. The current stock price is relatively higher if compared against the beginning of 2021 or year 2020. But, i think the increment is not as much as other dry bulk players in other parts of the world, especially after the plunge in last few trading days.

    Cold Eyes appeared in top30 shareholder list of Maybulk some years ago. I no longer see his name in the latest FY20 annual report, so i assume he has given up on Maybulk (or reduced his holdings). The BDI index did show the sign of rebound in year 2019 but didn't last long, it seems like the index can sustain at high level at this time around (hopefully).

    1. Its FY21Q1 should have better financial result but I think it might not meet expectation of some people who anticipate "explosive profit", as charter rate recognized in FY21Q1 might be mostly from last year FY20Q4's rate. FY21Q2 onwards should be very good, especially Q3. The only concern for me is the fleet size has been reduced to 8 now from 12 last year. Anyway recent rise in charter rate is incredible and is still very far from historical high. I think the higher rate now is sustainable, that's why I have bought some of its shares too yesterday, but my price is close to intraday high...

    2. Good to know we are in the same Maybulk boat :)
      In last quarter, Maybulk actually was profitable. My calculation shows its core EPS was 0.41sen vs -4.98sen reported loss; the difference came from the huge vessels impairment. Thus, a positive Q1'21 quarterly result should be acceptable to market people.
      Having said that, i think more important factor is the BDI index because the index is forward-looking and quarterly results is kind of backward-looking. People in market is "ultra" forward-looking now.

    3. FY21Q1 EPS 1.5sen, a clean and good result :)

  3. Yeah, satisfactory results and it is within my expectation. There is no one-off gain in this quarter, so the profit is real.
    What i don't quite understand is why Maybulk decides to dispose another vessel in the midst of improving charter rate...maybe the vessel is very old (?) I hope they did make order for new vessels earlier for replacement, i doubt so as i don't read from anywhere that this is the case.
    Anyway, let's see how market reacts to this quarterly result tomorrow.

    1. The vessel for sale is a 5 year-old Handysize as mentioned in its AR. I hope the management can withhold its sale...