With less than three months remaining in 2022, natural gas led gains among actively traded commodities in futures markets, given tight supplies in the United States and an energy crisis in Europe.
Industrial commodities such as iron ore and steel, however, did not generate much interest in the face of demand destruction as economic growth slowed globally.
The S&P GSCI SPGSCI,
a commodities index, has climbed more than 14% so far this year to Oct. 4, with the S&P GSCI Energy SPGSEN,
sub-index up nearly 27%. But the S&P GSCI Industrial Metals SPGSIN,
the sub-index is down 16%.
“The main price drivers for most of this year’s movement in the commodities universe have their origins in the war in Ukraine,” says Matthew Sherwood, senior Europe and principal commodities analyst at Economist Intelligence. Unit.
“There have been direct disruptions in oil and grain supplies, and natural gas is directly linked to Russia cutting off supplies to Europe.”
Natural gas prices in Europe have reached record highs, and there have been “ripple effects” on US prices as European demand for US liquefied natural gas has increased, he says.
On October 4, US natural gas futures NG00,
NGX22,
stood at $6.837 per million British thermal units, up 83% this year, even after a loss of nearly 26% in September. Dutch European benchmark TTF gas futures were at 161.95 euros per megawatt hour, up 149% from the end of last year.
The EIU expects prices to remain at or near current levels as Europe enters the winter heating season, Sherwood says. Shortages are always possible, and it will be difficult for Europe to “contain demand”.
When it comes to oil, the market is tight, but the financial market is “increasingly worried about the impending recessions in Europe and the United States and the global slowdown more generally,” Sherwood said.
On October 4, the world benchmark for Brent crude BRN00,
BRNZ22,
settled at $91.80 a barrel, up 18% year-to-date, while US benchmark crude West Texas Intermediate CL.1,
CLX22,
was $86.52, up 15% this year.
Oil and gas are expected to “remain volatile, to the upside” in the fourth quarter as supply issues resurface and a cold winter drains European supplies, said Brian Frank, wealth manager and CIO at Frank. Capital.
Meanwhile, other industrial commodities, including base metals, have seen their prices fall this year.
The global economy has supported base metals in the first half of this year amid a post-Covid rebound, Sherwood says. Base metals are now falling, with European and North American markets entering “at least technical recessions and worse in the case of the industrial heartlands of Europe”.
Steel and iron ore prices have fallen this year, with the S&P Global Platts IODEX 62% Fe iron ore price at a 10-month low of $95 per metric ton on September 2.
China’s Covid-19 outbreaks have continued to “undermine confidence in its economy,” wrote Ronald Cecil, senior analyst for metals and mining at S&P Global Commodity Insights, in a recent report.
Industrial commodities are showing “clear signs of demand destruction,” says Frank of Frank Capital. Prices and demand could continue to weaken this quarter as high interest rates ‘bite and cap demand for growth spending’, but this could provide an ‘opportunity’ as many of these commodities are also “limited in terms of supply when the world resumes growth on the road”. ”
Sherwood expects most commodities to see lower prices this quarter.
“With Europe falling into recession…and the global economy slowing significantly under the weight of monetary tightening, the pressure is mainly on the downside,” he said.
