SINGAPORE: Coal and natural gas markets were poised on Friday to end 2022 with strong gains after a global energy crisis triggered by the Russia-Ukraine war stoked a sharp upswing in prices, while tighter supplies expected in 2023 could fuel more gains.
Industrial metals, iron ore and rubber are on track to finish in negative territory, pushed down in 2022 by China s strict zero-COVID policy and fears of a world recession.
Agricultural markets, including grains and palm oil, jumped to all-time highs in March on adverse weather and pandemic-related supply disruptions, triggering food inflation, but those commodities gave up much of their gains in the second half.
“Despite the recent price declines, commodities will still likely finish the year as the best performing asset class…,” Goldman Sachs said in its 2023 commodity outlook.
“From a fundamental perspective, the setup for most commodities next year is more bullish than it has been at any point since we first highlighted the supercycle in October 2020.”
SCRAMBLE FOR SUPPLIES
Global gas markets were roiled this year after Russia cut supplies to Europe and a major pipeline was damaged amid the war in Ukraine, leading European countries to import record volumes to ensure winter supplies.
The additional demand for liquefied natural gas (LNG) amid tighter supplies of piped gas placed enormous strain on the global market, spurring an energy crisis that pushed gas prices to historic highs.
Newcastle coal futures have soared almost 140% in 2022, the biggest jump since 2008. U.S. gas futures and Dutch wholesale gas prices have jumped by more than 20%, rising for a third consecutive year.
Because Europe will continue importing LNG to rebuild gas inventories next year after winter, gas prices are expected to remain elevated amid limited new supplies coming on-stream.
Dismantling of tight pandemic controls in China, the world s second-largest LNG importer, could also promote economic recovery and greater LNG consumption next year.
However, a European cap on gas prices starting in February could help keep a lid on the market and reduce the volatility seen this year.
Oil prices are on track for a second annual gain, with Brent up almost 6% and U.S. crude rising nearly 5%.
As for industrial metals, three-month copper on the London Metal Exchange has dropped more than 13% in 2022 and aluminium is down about 15%, even though both metals reached record highs in March.
Spot prices of iron ore bound for China , which consumes about two-thirds of global supply, have fallen about 5% this year, ending near $115 per tonne.
Citi analysts are bearish on nickel and zinc for the next six to 12 months, seeing strong supply growth, while they are bullish on iron ore and aluminium.
“Iron ore is expected to remain strong in the near term and could follow through in the bull case of a major China credit easing …,” they said in a note.
China s U-turn on COVID policy and its pledge to increase support for the ailing real estate sector helped prop up prices of ferrous and non-ferrous metals in December.
Still, optimism has been tempered by the country s surging COVID infections and a rising risk of global recession in 2023 if central banks, as expected, keep raising interest rates to curb inflation.
Nickel , the big outperformer in the metals segment, is on course for a 45% rise, its largest since 2010, partly due to a shortage of metal that can be delivered against the LME contract and partly because the market has been volatile since volumes shrank after a trading fiasco in March.
