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OFFON

Jordan Dufee

Senior Analyst
A big fan of gold, oil, rare metals and copper, Jordan Dufee is without a doubt the specialist of commodities on Marketscreener.
Expert of our processes of technical and fundamental investments, true Swiss knife of the team, he puts his vast financial culture at your disposal.

Commodities : Energy and metal prices ease

10/29/2021 | 06:10am EST

Energy prices are in a state of flux and are easing as fast as they have been rising in recent weeks. A similar dynamic can be observed in the base metals segment, albeit to a much lesser extent.

New offensive from Beijing. Chinese planning authorities are reportedly preparing to shift into higher gear in order to put a stop to soaring energy prices amid increased pressure to meet the country's electricity demand. Beijing would like to cap the price of coal at 1,200 yuan per tonne, a ceiling that could be lowered if necessary and which should last until 1 May 2022. The aim of the move is to keep coal prices within a "reasonable" long-term price range, according to the State Planning Commission.

The effect on prices was not long in coming. The Chinese benchmark, listed on the Zhengzhou stock exchange, has plummeted nearly 50% since its annual peak of 1065 yuan. For those of you who are familiar with this column, this is the umpteenth measure taken by China to curb inflation in commodity prices. All actions are good to weigh on prices: limiting access to certain financial instruments, disposing of strategic stocks, trade restrictions, etc.

Evolution of coal prices in China, in yuan (Zhengzhou thermal coal futures) - source: Bloomberg

Putin's whistle blows. Let's stay with energy and the big price movements with natural gas. Vladimir Putin has ordered Gazprom to increase its gas deliveries to the European Union from 8 November. A long awaited measure by Europe, whose gas stocks are 70% lower than last year and which allows an easing of the British and Dutch benchmarks, as you can easily see on the graph below.

Evolution of the main natural gas futures contracts (expiring January 2022) in Europe - source: ICE

A new era of mining investment on the horizon? Years of depletion, restructuring and balance sheet repair have taken their toll on capital expenditure by the largest mining companies. However, this iron discipline (no pun intended) of capex flows could dissipate due to high base metal prices and decarbonization targets. Rio Tinto is leading the way with a not insignificant increase in its budget for 2022 and 2023.

Need for a breather. The rise in the greenback and the growing uncertainty about economic statistics in China are not good news for the base metals segment. Copper has been hit hard, falling 7% in ten days, and the same is true of zinc, lead, aluminium, tin and nickel.

However, we should try to put the strength of these declines into perspective, as they come after an acceleration in prices that began at the beginning of the month.

 


ę MarketScreener.com 2021
Stocks mentioned in the article
ChangeLast1st jan.
PUBLIC JOINT STOCK COMPANY GAZPROM NEFT -1.69% 526.25 End-of-day quote.-3.40%
RIO TINTO PLC -1.43% 5385 Delayed Quote.10.22%
S&P GSCI COPPER INDEX 2 -2.42% 689.692 Delayed Quote.2.39%
S&P GSCI LEAD INDEX -0.47% 354.3309 Delayed Quote.2.34%
S&P GSCI NATURAL GAS INDEX 2.08% 191.076 Delayed Quote.9.41%
S&P GSCI ZINC INDEX -1.56% 278.2325 Delayed Quote.0.74%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.26% 6.345 Delayed Quote.0.08%