Commodities

Commodities Weekly Wrap

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 Weekly Wrap

Demand fears giving way to supply concerns

The experience of South Africa with the Omicron variant seems to have allayed investors’ fears over commodity demand. Indeed, the net long position held by investors in the oil futures market has begun to rise, indicating an improvement in sentiment. Despite softening oil demand in the US, any expectations of weaker energy demand owing to Omicron have been outweighed by supply concerns, following hits to oil output from pipeline outages in Libya and civil unrest in Kazakhstan. These latest shocks (which add to an already-large list of shocks) will support prices for now, which will mean that the cost of production of other energy-intensive commodities will remain high. With virus fears moved towards the backburner, attention will probably focus further on the supply picture in the coming weeks. China’s trade data for December will be released on Friday, which we expect to show that weak activity in the construction sector led to a softening in commodity imports.

7 January 2022

Commodities Weekly Wrap

More hawkish central banks may put a lid on prices

It was a week of central bank decisions, culminating in ‘Super-Thursday’.  The big picture is that central banks generally sounded more concerned about the rise in inflation, despite the ongoing spread of the Omicron variant. Although there was not a major reaction in commodity markets, the prospect of earlier monetary tightening in the coming years, and the likelihood of a somewhat stronger US dollar, represent headwinds for commodity prices. Next week may be relatively quiet in markets, given the approach of the holiday season. Indeed, this will be our last Commodities Weekly Wrap of 2021. However, it will be a busy few days on our return in early January, with the release of China’s December PMIs and the OPEC+ meeting scheduled for 4th January. And not to forget, given that OPEC+ left the last meeting ‘in session’, there could still be a change in output policy before January if the group perceives a greater risk to demand from the spread of Omicron. – This will be the last Economics Weekly for 2021. The next Weekly will be sent on Friday 7th Jan. 2022 –

17 December 2021
More Publications

Commodities Weekly Wrap

Renewed surge in Chinese demand still seems unlikely

We are sceptical that commodity demand growth in China is about to reignite, despite this week’s cut to the required reserve ratio (RRR) for most banks and data showing surprisingly strong imports of key commodities in November. After all, both developments are in stark contrast to the ongoing woes in China’s commodity-intensive construction sector, with ratings agency Fitch determining on Thursday that major property developer Evergrande is now in default. Together with the fact that there still appears to be little appetite among policymakers for a sharp rebound in credit growth, we continue to expect growth in China to slow over the coming year. In turn, this is a key reason why we forecast that most commodity prices will fall back by end-2022. The release of China activity data for November (Wednesday) and euro-zone flash PMI data for December (Thursday) will be the main events for commodity markets next week. We think the China activity data will underwhelm, which would add weight to our view that last month’s upturn in imports is a misleading signal of underlying demand for commodities there. Meanwhile, we think that Omicron-related caution will have weighed on the PMI data in the euro-zone which, together with the downturn in mobility indicators there, would bode especially ill for oil demand.

Commodities Weekly Wrap

OPEC+ sticks to its plan, no forecast change required

Oil prices fell briefly on Thursday after OPEC+ decided to push ahead with its plan to raise oil output by 0.4m bpd a month, despite plunging oil prices since news of Omicron broke. Prices recovered shortly after, though, probably because OPEC+ left the door open to making quota changes before its next meeting in early January. It appears the group needs more time to mull over the oil-demand implications of Omicron. We have revisited our own oil market outlook. Turning to next week, China’s trade data for November comes out on Tuesday. We expect imports to have fallen, reflective of softer construction activity. We’ll be holding a Drop-In on the same day (08:00 GMT/16:00 HKT) with the China team to discuss the data and China’s commodities demand outlook (Registration). And more broadly, markets will be closely monitoring Omicron-related developments next week.

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.

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.

Commodities Weekly Wrap

OPEC+ unlikely to ride to the rescue anytime soon

Despite falling short of its targeted increase in output once again in October, we think OPEC+ will continue to snub calls to raise output more rapidly. The week began with comments from the Biden Administration that OPEC+ was imperilling the global economic recovery by sticking to its existing output plan, and that it was considering a release of stocks from its strategic reserve to stem the rise in domestic fuel prices and put pressure on the group to change course. But the reality is that OPEC+ can afford to drag its feet for now. That’s because, whereas in the past when the group would have worried about a loss of market share, other non-OPEC+ producers (most notably in the US) are also struggling to raise output. As a result, we continue to expect oil prices to trend broadly sideways between now and the end of the year.

1 to 8 of 251 publications
See More ↓