Commodities

Commodities Weekly Wrap

New COVID-19 variant could spark energy price falls

Most commodity prices fell on Friday after South African scientists declared they had identified a new COVID-19 variant on Thursday which may be more transmissible. We think it’s still early days to say what this means for the global economy, but it has raised concerns about weaker demand for some commodities, especially oil if travel restrictions are re-imposed. These developments will make the OPEC+ meeting next week even more intriguing. We now think that there is a much higher risk that OPEC+ decides to slow or halt the gradual return of supply given mounting concerns over demand and the release of reserves. Elsewhere, China will publish its manufacturing PMI data (Tuesday/Wednesday), which we expect to show a slight uptick in manufacturing activity. In addition, we should learn more about the new COVID-19 variant and how governments will respond.

26 November 2021

Commodities Update

The slump in the Baltic Dry Index is all about iron ore

Some commentators have pointed to the slump in the Baltic Dry Index as a sign that shipping bottlenecks are easing. But we think it is more a symptom of lower Chinese steel output and plunging iron ore prices.

25 November 2021

Commodities Weekly Wrap

The energy crisis rumbles on …

This week showed that the energy crisis is not in the rear-view mirror just yet. Germany’s energy regulator suspended its certification process of the Nord Stream 2 pipeline on Tuesday, owing to issues regarding the organisational structure of the pipeline’s ownership (rather than a political energy supply security assessment). Markets took the surprise delay, which was not previously expected to be an issue in the approval process, badly as prices soared by 18%. It is now increasingly unlikely that gas flows through Nord Stream 2 will ease the shortage of stocks in Europe over this winter. What’s more, there is little evidence that flows from Russia have increased as suggested might happen by President Putin. And European stocks are both much lower than normal levels and now falling in line with seasonal norms. As a result, we suspect that gas prices will remain high over the next few months. Looking to the week ahead, the main data release will be November’s batch of flash PMIs on Tuesday. We expect that those in the Euro-zone will soften and show the impact of recent surges in virus cases, which probably dampened international and domestic travel and oil demand.

19 November 2021

Key Forecasts

Key Commodity Price Forecasts (End-Period)

 

Actual

Forecasts

1mth ago

1 wk ago

Latest

2021

2022

 

27th Oct.

19th Nov.

26th Nov.*

Q4

Q1

Q2

Q3

Q4

         

Energy

        

Crude Oil (Brent, US$ per barrel)

85

79

78

80

75

70

65

60

US Natural Gas (US$ per mBtu)

6.20

5.07

5.22

5.00

4.50

4.00

3.50

3.00

Coal (Newcastle, US$ per tonne)

183

153

158

140

125

110

95

80

         

Industrial Metals

        

Copper (US$ per tonne)

9,667

9,753

9,892

9,500

9,250

9,000

8,750

8,500

Aluminium (US$ per tonne)

2,665

2,688

2,726

2,800

2,700

2,600

2,500

2,400

Iron Ore (US$ per tonne)

112

90

105

90

85

80

75

70

         

Precious Metals

        

Gold (US$ per ounce)

1,797

1,845

1,808

1,700

1,675

1,650

1,625

1,600

Silver (US$ per ounce)

24.04

24.59

23.62

23.50

22.38

21.25

20.13

19.00

Platinum (US$ per ounce)

1,010

1,031

987

950

940

930

920

900

         

Agriculturals

        

Corn (US cents per bushel)

557

571

580

500

488

475

463

450

Soybeans (US cents per bushel)

1,239

1,263

1,267

1,100

1,075

1,050

1,025

1,000

Wheat (US cents per bushel)

760

823

837

750

713

675

638

600

Sources: Refinitiv, Capital Economics *Iron Ore latest price is 25th Nov. 2021


New COVID-19 variant could spark energy price falls

Commodities Weekly Wrap

27 November 2021

Our view

Low stocks ahead of winter in the Northern Hemisphere have sent energy prices soaring. In turn, higher energy costs have also constrained the production of other commodities, most notably industrial metals. Energy supply is likely to remain tight for at least the remainder of this year, which is a key reason why we have pushed back our forecasts for a broad-based decline in commodity prices into 2022. By then, once demand for energy has cooled and stocks have been rebuilt, commodity prices are likely to be dragged lower as global economic growth continues to slow. We think that industry and construction activity in China are on the cusp of a particularly deep downturn, which will be a key factor weighing on the prices of industrial metals.

Latest Outlook

Commodities Outlook

Energy supply squeeze to delay decline in prices

Low stocks ahead of winter in the Northern Hemisphere have sent energy prices soaring. In turn, higher energy costs have also constrained the production of other commodities, most notably industrial metals. Energy supply is likely to remain tight for at least the remainder of this year, which is a key reason why we have pushed back our forecasts for a broad-based decline in commodity prices into 2022. By then, once demand for energy has cooled and stocks have been rebuilt, commodity prices are likely to be dragged lower as global economic growth continues to slow. We think that industry and construction activity in China are on the cusp of a particularly deep downturn, which will be a key factor weighing on the prices of industrial metals.

28 October 2021