My subscription
...
Filters
My Subscription All Publications

Commodities

Industrial Metals

Non-energy prices only have so much more to fall

Most commodity prices fell this week as demand concerns picked up due to ongoing monetary policy tightening by major central banks. Speaking to the US Senate Banking Committee on Wednesday, Federal Reserve Chair Jerome Powell underlined his “strong commitment” to bringing current multi-decade high inflation back to target. A notable exception to this trend, however, was a rise in natural gas prices in Europe and Asia owing to fears that Russia could potentially further cut gas supply to Europe. If demand concerns intensify, further falls in commodity prices could be in store. However, we don’t think there is a great deal of room for prices to fall in the near term for a couple of reasons. First, energy prices will remain historically high due to supply constraints, putting a floor under other commodity prices. Second, stocks of many commodities, particularly industrial metals, are low, which will further underpin prices. And finally, China’s economy should recover somewhat in the second half of this year. Looking ahead, G7 leaders begin a three-day meeting on Sunday, during which they will discuss sanctions against Russia and how to support the long-term reconstruction of Ukraine. Any new sanctions coming out of that meeting could affect commodity prices. Data-wise, the EIA should get back to releasing weekly oil inventory data next Wednesday, after missing this week’s release due to technical reasons.

24 June 2022

Global Steel Production (May)

Global steel production continued to pick up in May, led by higher output in India and China, which more than offset the ongoing decline in Europe’s production. The rise in input costs, efforts to curb carbon emissions and softer demand suggest that there will be only limited gains in global steel output this year.

22 June 2022

The Codelco strike threat, Chile and the copper price

A threatened strike at Chile’s copper giant, Codelco, could knock as much as 0.3%-pts off quarterly GDP growth for every week that workers are on strike and worsen the country’s balance of payments strains. What’s more, it may not even be enough to give a lift to the copper price given subdued global demand. In view of the wider interest, we are also sending this Latin America Update to clients of our Metals Service.

21 June 2022
More Publications

Global Aluminium Production (May)

Global aluminium production has increased steadily since the start of the year in large part owing to a rebound in China’s output. At the same time, demand is relatively subdued, which suggests that aluminium prices have further to fall in the second half of the year. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

Supply concerns to dominate in gas markets

European natural gas prices surged this week on renewed supply concerns, as Russia once again cut gas supplies to Europe and the US Freeport LNG export facility closed for six months. The huge price move emphasises how volatile natural gas prices can be, particularly in the current environment when global supplies are tight. High volatility is likely to persist as news on gas flows develops but we’re forecasting the European natural gas price to remain high, ending the year at €120 per MWh. Meanwhile, the financial market backdrop has become less favourable for commodity prices. Global monetary tightening and concerns about global growth have hit risky assets like equities and non-energy commodities this week. Genuine supply concerns are keeping prices of certain commodities elevated, but there is the potential for large price falls if some of these fears ease or prove unfounded. Next week, we don’t think there is much chance of a cut to China’s Loan Prime Rate, to be announced on Monday and the published agenda for the National People’s Congress Standing Committee doesn’t indicate that any extra financing for fiscal support will be discussed. Without significant stimulus, we think that soft demand from China will weigh on industrial metals prices this year.

Chinese refined output will only plug some of the gap

Robust Chinese refined metal output, alongside subdued domestic demand, has combined with constrained refined output elsewhere to provide greater export opportunities for China. But there are limits on the extent to which Chinese metal can fill the shortfall elsewhere. This is one reason why we expect industrial metals prices to remain historically high for some time yet. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now

Lockdowns are only part of China’s subdued demand

The supply risks associated with the war in Ukraine have not gone away, but there has been more market attention in recent weeks on the outlook for commodities demand. In the very near term, the lockdowns in China weighed on both energy and, to a lesser extent, metals consumption. This should bounce back if and when restrictions are fully lifted. However, we think China’s commodities demand will remain subdued thereafter on the back of weaker export demand and sluggish construction activity. As a result, we forecast that metals prices will fall further this year. Looking to next week, China is set to publish its activity and spending data for May, which should pick up a little from the depressed levels in April but may not be enough to give a significant lift to commodities prices. Otherwise, we will continue to monitor closely the covid response in China (given its impact on energy demand) and the timely data on Russia’s energy exports to gauge the impact of sanctions.

Weaker demand to drag on EU steel prices

Softer demand for steel in Europe has dragged prices lower recently, despite production in the region being constrained by high production costs. We expect prices to fall a little further to €900 per tonne by end-year from around €950 currently.

1 to 8 of 86 publications