Downward pressure on prices is mounting

Commodity prices held up well this week, despite the hawkish tone of the Federal Reserve and continued worries over a messy default by Evergrande, the Chinese property developer. Notably, European natural gas and Asian LNG prices continued to climb, powered by ongoing supply disruptions and unseasonably strong demand. Oil prices also made gains amid concerns that OPEC members are struggling to hit collective production targets which, if sustained, poses an upside risk to oil prices. Looking towards next week, Chinese PMI data are scheduled for release on Thursday/Friday. We expect a continued loss of momentum in industrial activity, which would be negative for commodity prices, especially industrial metals. Investors will also be closely watching developments around Evergrande. We expect a managed restructuring of the company, which should limit the negative impact on China’s metals demand.
Caroline Bain Chief Commodities Economist
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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

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The slump in the Baltic Dry Index is all about iron ore

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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 Caroline Bain

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Despite high prices, global steel output contracted in August. And given that the authorities in China are proactively encouraging lower output there, further falls in the coming months appear likely.

23 September 2021

Energy Data Response

US Weekly Petroleum Status Report

There were hefty falls in both crude and petroleum product stocks, reflecting closed production capacity due to damage caused by Hurricane Ida. Implied gasoline demand also dropped back but it is impossible to know whether that reflected soft underlying demand or a lack of product owing to refinery closures.

15 September 2021

Commodities Weekly Wrap

More of the same

Commodity markets have been relatively quiet over the last few weeks, with many prices trading in a narrow range. There are a few exceptions, most notably the prices of natural gas and coal, which have soared on the back of surging power demand and constrained supply. In contrast, oil has continued to hover around $70 per barrel, as concerns about demand prevent price gains and as OPEC+ supply restraint acts as a floor under prices. We think next week could be a bit directionless again. China is set to publish its monthly activity and spending data on Wednesday, which we expect to show further weakness. So far, commodity prices have been surprisingly sanguine about the economic downturn in China. But there are now clear signs that growth in the US and UK economies is also slowing, which underpins our view that most commodity prices will be falling as we move into 2022. CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

10 September 2021
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