Energy price rally maybe running out of steam

Commodity prices generally rose this week, helped by the US senate approving a deal to increase the federal debt ceiling. After a rollercoaster of a week, European natural gas prices ended the week lower following comments from President Putin that Russia was prepared to stabilise global energy prices by boosting supply. Nevertheless, we continue to expect most energy prices to remain high until at least Q2 2022. It was a quiet week for metals markets, although most prices rose on Friday as Chinese traders returned from the national ‘Golden Week’ holiday. The main data release for commodity markets next week will be the China trade data for September (Wednesday). We suspect that China’s imports of industrial metals will have edged lower in tandem with weaker construction activity, but imports of coal are likely to have risen in response to ongoing power shortages.
Watch out for our Group Chief Economist, Neil Shearing, who will be presenting the Economic keynote at the LME Metals Seminar on Monday 11th October. If you would like copies of the slides, please email caroline.bain@capitaleconomics.com
Caroline Bain Chief Commodities Economist
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Commodities Weekly Wrap

Energy price rally may spill over to other commodities

Most commodity prices increased this week. Optimism over electrification, which was a hot topic during LME Week, seemed to feed through into higher industrial metals prices. But the prices of energy commodities were the pick of the bunch. Brent crude rallied throughout the week and briefly breached $85 per barrel on Friday. OPEC’s monthly oil market report showed that output in September was still 390,000 barrels per day short of target. As prices rise, there are growing calls for higher OPEC production. But it seems doubtful that the group could raise output much faster, unless it abandons the current quota system. Meanwhile, a cold spell that has blown through China has compounded upward pressure on energy prices. That is in addition to the Chinese government allowing coal-fired power prices to rise by up to 20% from base levels from Friday. Looking to next week, China is set to publish its September activity and spending data and Q3 GDP on Monday. We suspect that China’s economy contracted in q/q terms. So far, commodity prices have largely shrugged off the slowdown in China’s economy. And we wouldn’t be that surprised if they continue to do so as currently elevated energy prices spill over to other commodity markets by substantially raising production costs of agriculturals and metals.

15 October 2021

Commodities Update

Downturn in China’s commodity imports intensifying

China’s imports of key commodities slumped almost across the board in September. The main exception was imports of coal, which soared in response to recent power shortages. We expect coal imports to remain strong over the next few months, but they too will eventually fall back next year.

13 October 2021

Commodities Update

How high energy prices affect other commodity prices

As energy prices hit multi-year highs, we look into the link between energy and non-energy commodity prices. It is clear that industrial metal prices track energy prices the most closely over time, which is mainly because the drivers of demand are similar. That said, industrial metals, like many commodities, require large energy inputs to produce, which is another reason why their prices tend to move together.

11 October 2021

More from Caroline Bain

Energy Update

Natural gas prices now untenably high

The price of European natural gas (TTF) surged by around 35% this morning, before crashing back down on Putin’s reassuring comments about Russian supply. The latest price moves appear speculative, and we retain our view that it is just a matter of time before supply and demand adjust to bring prices back down.

6 October 2021

Energy Watch

Latest natural gas price surge will unwind

At the time of writing, global natural gas prices are soaring. Dramatic moves in global natural gas prices are nothing new and not even very surprising given the extreme weather over the past year or so. In this Energy Watch, we consider earlier spikes in natural gas prices and discuss whether this time is different.

In view of the wider interest, we are also sending this Energy Watch to clients of our Commodities Overview service.

1 October 2021

Commodities Update

China’s power shortage curbs metal supply & demand

China’s manufacturing PMIs for September diverged, but both still point to subdued commodities demand. What’s more, the surveys were conducted before power shortages started to constrain activity. Weaker industrial activity should put downward pressure on most commodity prices but, in the case of some metals, it could also lead to lower supply. In view of the wider interest, we are also sending this Commodities Update to clients of our Metals service.

30 September 2021
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