What will the COP26 deal mean for commodities?

Although the climate deal struck at COP26 appears to have fallen short on many counts, it does at least reaffirm our view that demand for traditional energy commodities will struggle in the long run.
Kieran Clancy Commodities Economist
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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

Commodities Update

Prices to come off the boil in 2022

After a stellar run in 2020-21, we expect the prices of most commodities to ease back this year as economic activity slows, notably in China, and supply bottlenecks start to ease. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022

More from Kieran Clancy

OPEC Watch

OPEC Monthly Oil Market Report (Nov.)

Although OPEC oil production increased in October, it remained significantly below the group’s target. And with little prospect of a meaningful increase in non-OPEC output in the near term, we continue to expect oil prices to hold up reasonably well between now and the end of the year.

11 November 2021

Commodities Update

Pick-up in China metal imports unlikely to last

China’s imports of iron ore and copper rose in October compared to a month prior (in seasonally adjusted terms). But we doubt this is the start of a renewed upswing, not least as indicators of demand have deteriorated and volumes were still down sharply compared to the same time last year.

8 November 2021

Commodities Update

Metals can’t ignore China slowdown for much longer

Although the China PMI data were a mixed bag in October, the big picture is that they remain at odds with sky-high industrial metals prices. This adds to our view that prices have quite a long way to fall over the next year or so as constraints on supply caused by power shortages start to fade.

1 November 2021
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