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FILE PHOTO: Bucket wheel excavators await the start of lignite mining from the coal mines near Obilic

MONEY & BUSINESS: LNG, coal lead 2021 commodities rally as markets eye COVID-19 for next move



FILE PHOTO: Bucket wheel excavators await the start of lignite mining from the coal mines near the town of Obilic, Kosovo September 10, 2021. Picture taken with a drone. REUTERS/Fatos Bytyci/File Photo

December 31, 2021

By Naveen Thukral and Florence Tan

SINGAPORE (Reuters) – Commodity prices from energy and metals to agricultural products rebounded sharply in 2021, with power fuels leading the rally, driven by tight supplies and a strong economic recovery as COVID-19 vaccinations staved off widespread lockdowns.

Global demand for commodities is expected to remain robust in 2022 and underpin prices as the world economy continues to recover, although similar price jumps are unlikely, analysts and traders say.

“2021 has been characterised by a huge broad-based rally,” said Jeffrey Halley, a senior analyst at brokerage OANDA.

“Although I believe commodity prices will remain robust, I believe the rebound in 2020 and the rally of 2021 will be exceptional years and as such I am not anticipating the same level of gains in the year ahead.”

Energy and food prices rocketed higher this year, hammering utilities and consumers from Beijing to Brussels, raising inflationary pressures.

High prices are encouraging producers to ramp up output, but some analysts expect supplies for products such as oil and liquefied natural gas (LNG) to stay tight as these projects require years for production to come on line. (Graphic: Top energy markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/gdvzykrxypw/TopEnergy2021.png)

ENERGY

Record coal and natural gas prices led to a severe power crunch from Europe to India and China in 2021.

Asian LNG rallied more than 200%, while Asia’s benchmark coal prices doubled.

“Global LNG demand grew by 20 million tonnes per year in 2021 with Asia accounting for virtually all of this growth,” said Valery Chow, head of Asia gas and LNG research at Wood Mackenzie, adding that more than 20% growth in demand from China has made it the world’s top importer, overtaking Japan.

“However, persistently high LNG spot prices are likely to start dampening overall demand growth, especially in the more price-sensitive markets of South Asia and Southeast Asia,” he said.

Global oil prices also recovered 50% to 55% in 2021, with Brent settling at $77.78 per barrel and WTI at $75.21 per barrel, and are set to rise further https://www.reuters.com/markets/commodities/global-oils-comeback-year-presages-more-strength-2022-2021-12-23 next year as jet fuel demand catches up. [nL1N2TG03Y]

In China, coal prices have more than halved from a record high reached in October after the top producer and consumer boosted output https://www.reuters.com/world/china/china-nov-coal-output-strikes-new-high-ensure-winter-supply-2021-12-15 and tamed prices.

METALS

The power crunch in China and Europe hit aluminium production, driving prices up over 40% for a second year of gains. However, it also affected demand for iron ore as the world’s top steel producer China cut output.

Iron ore prices, which hit record peaks in May, crashed in the second half of the year amid strict output curbs in China. Dalian iron ore futures fell more than 10% after a massive rally over the past two years.

Base metals are expected to outperform as energy transition will drive demand, analysts say, while supply chain bottlenecks could persist.

LME copper rose for a third year, up about 25% in 2021.

“Copper demand is expected to enter its second year of expansion, especially after the recently-concluded COP26 demonstrated an increasing willingness by governments to prioritise clean energy,” OCBC economist Howie Lee said. (Graphic: China’s main metals markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/zgpomaworpd/TopMetals2021.png)

RALLYING AGRICULTURE MARKETS

Chicago soybeans rose for a third year in a row, corn by 22% and wheat by more than 20%.

Supply constraints due to adverse weather and strong demand generally boosted agricultural markets.

Both Malaysian palm oil and soybean oil added more than 30%, each rallying for a third year.

For beverages, arabica coffee added almost 80%, taking gains into a second year and robustas jumped 70%, recouping three years of losses, as supply chain issues increased appetite. (Graphic: Top global agriculture futures markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/byvrjmogqve/TopAgs2021.png)

Raw sugar rose more than 20%, rallying for a third year and white sugar made similar gains as production fell in top producer Brazil because of a drought and frosts.

Precious metals prices may cool, dragged down by strong risk appetite in equities and other markets, analysts say.

Gold was largely unchanged after dropping last yearand silver is set to end the year down after two strong years.

(Reporting by Naveen Thukral and Florence Tan in Singapore; additional repporting by Yuka Obayashi in Tokyo, Enrico Dela Cruz, Manila, Muyu Xu and Emily Chow in Beijing; graphics by Gavin Maguire; editing by Richard Pullin)





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