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Omicron puts demand back in the spotlight

We were already downbeat on the outlook for most commodity prices in 2022, not least because we thought that prices had lost touch with demand fundamentals. The risk of Omicron-related effects on demand just adds weight to our view. In view of the wider interest, we are also sending this Commodities Overview Update to clients of all our Commodities services.  
Caroline Bain Chief Commodities Economist
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Commodities Weekly Wrap

Energy prices no longer appear to be “lifting all boats”

Most commodity prices fell this week amid a general sell-off in risky assets and a stronger US dollar. That said, we think the days of higher energy prices leading to an all-encompassing rally in commodity prices could be over. Natural gas prices rose on news of disrupted supply through a key transit point in Ukraine but, unlike in previous weeks, other commodity prices didn’t follow natural gas upwards. Instead, difficulties gaining unanimous approval from EU member states for an oil embargo weighed on oil prices. And industrial metals prices fell as data released this week highlighted the severe impact of lockdowns on Chinese demand. Commodity prices will continue to take their direction from latest developments in the newsflow, but we can expect a more nuanced story as commodity groups follow different drivers in the coming weeks. Energy and certain agricultural commodity prices will probably track developments in the war and related sanctions. But industrial metals will continue to take direction from the outlook for demand in China. Prices will probably suffer next week as activity data from China are likely to show that economic activity took a big hit in April as efforts to contain the latest virus outbreak intensified.

13 May 2022

Commodities Update

Some bright spots in China’s commodities trade data

Energy commodity imports held up relatively well in April given the widespread COVID-19 restrictions. But the trade data throw up some question marks about demand for industrial metals given the downturn in export volumes and somewhat lower metals imports.

9 May 2022

Commodities Weekly Wrap

Demand and supply pull prices in opposing directions

Energy prices continue to be pummelled by upward pressure related to fears of supply shortages and downward pressure from signs of slower economic growth, tighter monetary policy and a stronger US dollar. This week was no exception, although supply fears dominated, and prices rose as the EU proposed a ban on Russian oil imports by end-year. Admittedly, unanimous approval by member states is proving difficult but, even without a co-ordinated response, we expect Europe’s oil imports from Russia to plunge. This will involve a scramble to find alternative suppliers, which is a key reason why we expect prices to remain high this year. What’s more, if the EU bans any EU involvement in the transportation of Russian oil, as was proposed, then this could potentially send prices even higher than we expect. Turning to next week, progress on the EU’s oil embargo plans will remain a key driver of prices, but there may be some scope for demand-related news to take the upper hand. China’s April trade data on Monday are likely to show a further fall in commodity imports given the virus-related downturn in economic activity, which could weigh on prices. By contrast, new infections are falling at the national level which, if it continues, may spark optimism about a recovery in China’s commodities demand and give a lift to prices, particularly industrial metals, later in the week.

6 May 2022

More from Caroline Bain

Commodities Update

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.

25 November 2021

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
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