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.
Caroline Bain Chief Commodities Economist
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Commodities Outlook

Sky-high commodity prices on borrowed time

Supply shortages have directly pushed up the prices of energy commodities and have indirectly raised prices of other commodities by boosting production costs. We think this will remain the case for at least another few months. But as we move away from winter in the Northern Hemisphere and these supply shortages ease, we forecast that commodity prices will fall across the board. In the oil market, a rise in both OPEC+ and US supply will be the main factor dragging prices lower, while subdued Chinese demand will be the key factor weighing on the prices of industrial metals. Meanwhile, we now expect the Fed to raise interest rates four times this year, which should mean that the recent move higher in real yields is sustained. Consequently, we are also negative on the outlook for the gold price.

26 January 2022

Commodities Weekly Wrap

Deteriorating risk appetite adds to price headwinds

Despite falls in the prices of most other risky assets, including equities, commodities held up well this week. The prices of equities and commodities tracked each other relatively closely throughout the pandemic, but they have diverged sharply since the start of 2022, with commodities continuing to make gains. However, we expect commodity prices to ease back over the course of the year on the back of slower growth in economic activity and improved supply. Looking ahead to next week, the main event will be the Fed meeting on Tuesday. We expect the Fed to issue a more hawkish statement, which could well include an explicit hint that the first interest rate hike will come in March. This should weigh on commodity prices, although arguably it is already priced into market expectations. Fed tightening is one of the factors feeding into our forecasts, which we will flesh out in more detail in our forthcoming Commodities Overview, Energy and Metals Outlooks.

21 January 2022

Commodities Weekly Wrap

A good start to a bad year for commodity prices

Most commodity prices increased this week, with coal prices leading the pack on the back of Indonesia’s ban on coal exports this month. That said, we don’t see commodity prices rising for much longer. Indeed, Chinese imports of most raw materials fell back in December, with an especially sharp decline in imports of industrial metals. We think this is a sign of things to come in 2022. Weaker Chinese growth is one of the main reasons why we expect most prices to fall this year. Looking ahead, prices of energy and energy-intensive commodities could well be swayed by tensions between Russia and Ukraine and its allies. If tensions continue to build, this could lead to sharp swings in the price of European natural gas in particular. High gas prices in Europe have already led to the curbing of some energy-intensive metals production, including aluminium and zinc. On the data front, China will release Q4 GDP figures on Monday, which we expect to show weaker y/y growth. OPEC will also publish its December oil supply numbers on Tuesday. We expect another month of below-target output.

14 January 2022

More from Caroline Bain

Metals Data Response

Global Steel Production (Oct.)

Global steel production contracted again in y/y terms in October, mainly owing to lower Chinese production. China’s output may rebound a little in the coming months as power rationing has come to an end, but weaker domestic demand will act as a disincentive.

23 November 2021

Energy Data Response

US Weekly Petroleum Status Report

The latest weekly data show falling crude and petroleum product inventories and a jump in implied demand. The strength in demand is somewhat surprising given the rise in gasoline prices, but we suspect that demand will ease back in the coming weeks as the price rise bites.

17 November 2021

Energy Focus

Lessons from the EU’s carbon permit market

This year, the EU announced reforms to its Emissions Trading Scheme (ETS) which, if introduced, would boost the price of each carbon permit and ultimately help the bloc to rapidly reduce its greenhouse gas emissions. In the first of a two-part Focus series, we explain the lessons that other countries can learn from the EU’s experience of an ETS. In the second Focus, we will analyse the implications of these new reforms and initiate coverage of the European carbon permit price.

10 November 2021
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