Commodities

Commodities Weekly Wrap

Energy price rally may spill over to other commodities

Most commodity prices increased this week. Optimism over electrification, which was a hot topic during LME Week, seemed to feed through into higher industrial metals prices. But the prices of energy commodities were the pick of the bunch. Brent crude rallied throughout the week and briefly breached $85 per barrel on Friday. OPEC’s monthly oil market report showed that output in September was still 390,000 barrels per day short of target. As prices rise, there are growing calls for higher OPEC production. But it seems doubtful that the group could raise output much faster, unless it abandons the current quota system. Meanwhile, a cold spell that has blown through China has compounded upward pressure on energy prices. That is in addition to the Chinese government allowing coal-fired power prices to rise by up to 20% from base levels from Friday. Looking to next week, China is set to publish its September activity and spending data and Q3 GDP on Monday. We suspect that China’s economy contracted in q/q terms. So far, commodity prices have largely shrugged off the slowdown in China’s economy. And we wouldn’t be that surprised if they continue to do so as currently elevated energy prices spill over to other commodity markets by substantially raising production costs of agriculturals and metals.

15 October 2021

Commodities Update

Downturn in China’s commodity imports intensifying

China’s imports of key commodities slumped almost across the board in September. The main exception was imports of coal, which soared in response to recent power shortages. We expect coal imports to remain strong over the next few months, but they too will eventually fall back next year.

13 October 2021

Commodities Update

How high energy prices affect other commodity prices

As energy prices hit multi-year highs, we look into the link between energy and non-energy commodity prices. It is clear that industrial metal prices track energy prices the most closely over time, which is mainly because the drivers of demand are similar. That said, industrial metals, like many commodities, require large energy inputs to produce, which is another reason why their prices tend to move together.

11 October 2021

Key Forecasts

Key Commodity Price Forecasts (End-Period)

Actual

Forecasts

1mth ago

1 wk ago

Latest

2021

2022

15th Sep.

8th Oct.

15th Oct.*

Q4

Q1

Q2

Q3

Q4

Energy

Crude Oil (Brent, US$ per barrel)

75

82

85

75

71

68

64

60

US Natural Gas (US$ per mBtu)

5.46

5.57

5.58

5.00

4.50

4.00

3.50

3.00

Coal (Newcastle, US$ per tonne)

178

239

240

160

140

120

100

80

Industrial Metals

Copper (US$ per tonne)

9,608

9,388

10,553

8,500

8,250

8,000

7,750

7,500

Aluminium (US$ per tonne)

2,870

2,948

3,163

2,400

2,300

2,200

2,100

2,000

Iron Ore (US$ per tonne)

120

124

121

100

90

80

70

60

Precious Metals

Gold (US$ per ounce)

1,793

1,757

1,774

1,700

1,675

1,650

1,625

1,600

Silver (US$ per ounce)

23.82

22.66

23.36

21.50

21.13

20.75

20.38

20.00

Platinum (US$ per ounce)

947

1,026

1,059

950

940

930

920

900

Agriculturals

Corn (US cents per bushel)

534

531

527

500

488

475

463

450

Soybeans (US cents per bushel)

1,295

1,243

1,220

1,100

1,075

1,050

1,025

1,000

Wheat (US cents per bushel)

712

734

737

680

660

640

620

600

Sources: Refinitiv, Capital Economics *Iron Ore latest price is 14th Oct. 2021


Energy price rally may spill over to other commodities

Commodities Weekly Wrap

17 October 2021

Our view

Energy commodity prices have soared in recent weeks and are likely to remain at historically high levels for a few months yet as stocks are low and will take time to rebuild. However, high prevailing prices should incentivise supply and we expect that prices will subsequently fall sharply, particularly in the second half of 2022. Industrial metals prices are also being supported by concerns over supply, exacerbated by the global energy crisis and the risk of power rationing in Europe. However, China’s power rationing, if prolonged, could also lead to lower demand for metals if manufacturing activity is curtailed to save energy. Either way, we think slower economic growth in China will weigh on industrial commodity prices next year.

Latest Outlook

Commodities Outlook

Price rallies to give way soon to broad-based declines

We think that the widespread rallies in commodity prices from their pandemic-induced lows are now close to, or in some cases already past, their peak. Most notably, we anticipate that Q3 will be as good as it gets for the oil price, and that it will start to ease back by the end of the year as OPEC+ continue to unwind their collective output cut and demand growth slows. Meanwhile, the rally in industrial metals prices already seems to have fizzled out, and we think this will soon give way to a protracted decline in prices as economic growth in China disappoints over the next couple of years.

29 July 2021