Gas & coal surge to support other commodity prices

Natural gas and coal prices soared in September. In turn, this has raised the output costs of industrial metals, most notably those which are especially energy intensive such as aluminium and steel. At the same time, reports suggest that some electricity providers are starting to substitute natural gas and coal for oil. While we expect natural gas and coal prices to ease back from here, they are likely to remain high by past standards well into next year. Nevertheless, we doubt this will be enough to prevent industrial metals prices from edging lower in tandem with weaker economic growth in China.
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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

More from Commodities Team

Commodities Weekly Wrap

Energy prices surge as rally looks overdone

Commodity prices generally rose this week, but especially energy prices, which continued to surge on constrained supply, unseasonably high demand and low stocks. That said, we think the supply shortfalls will prove temporary and expect energy prices to come off the boil next year. By contrast, most metals prices were largely down this week, as Chinese PMI data indicated subdued demand. What’s more, those PMIs did not factor in recent power constraints. Weighing on all commodity prices this week was a strengthening dollar, with the US Dollar Index (DXY) hitting a one-year high. OPEC+ meets next Monday to review its output policy. We already forecast a large rise in OPEC+ oil production next year as the group winds down its earlier output cuts, but there have been growing calls for an even faster unwinding, which would weaken oil prices. Elsewhere, we expect stronger US non-farm payroll numbers for September (Friday), which would support commodity prices.

1 October 2021

Commodities Weekly Wrap

Three key developments to keep an eye on

Most commodity prices ground higher this week. And, stepping back, we think events this week highlight three key themes to watch in the months ahead. First, natural gas prices show no sign of easing back, and are likely to remain high until early next year. Prices continued to surge this week on the back of ongoing supply disruptions and unseasonably strong demand in Asia. And, even if both these tailwinds fade, a rebuilding of stocks from their current lows should continue to support prices. Second, the growing divergence between industrial metals prices and underlying demand could set the stage for a sharp correction before the year is out. Despite the weaker-than-expected activity data out of China, industrial metals prices were a mixed bag this week. Nonetheless, they still remain close to multi-year highs. And finally, calls for OPEC+ to fully unwind its output cut before the end of next year (as is currently planned) look set to grow louder. The Biden Administration has already called for this and China has announced crude sales from its strategic reserve in an apparent bid to stem the rise in prices. The main event for commodity markets next week will be the Fed’s FOMC meeting (Tuesday/Wednesday). While we expect the Fed will fall short of formally announcing tapering QE, they may prepare the ground for it at the meeting. A repeat of the June meeting’s hawkish surprise could set the tone and drive a dollar rally, which would weigh on the prices of all commodities but particularly on some of the precious metals, which have tracked the dollar closely this year.

17 September 2021

Commodities Weekly Wrap

Delta to continue to weigh on prices

Commodity prices mostly fell this week on the back of a stronger US dollar as well as mounting concerns over the demand outlook. China’s July activity and spending data, published on Monday, were weaker than consensus forecasts, and the ongoing spread of the Delta variant of COVID-19 is leading to restrictions on mobility and activity globally, but notably in Asia.

20 August 2021
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