Commodities were one of the highest performing asset classes in 2021, with the Bloomberg Commodity Index rising more than 25% annually.
Pandemics, supply chain disruptions, government stimuli, and a recovery in demand after bad weather all contributed to the tight market last year and pushed up commodity prices. Supply chain disruptions are expected to improve towards this year, but product balances appear to be less tight than in 2021. This should ideally reduce the price from the current level. Nevertheless, prices are expected to remain above the long-term average.
What’s more, there are many macro headwinds that can limit further upsides of the commodity complex. First, the world’s central banks are set to tighten monetary policy during 2022, which will increase yields and pressure on the dollar. Commodities are denominated in dollars and are non-yielding assets, so this scenario limits the upside.
The Chinese real estate market is another long-standing concern. Further deceleration can put downward pressure on the complex, especially the metal. Nonetheless, it seems unlikely that this will happen, as China seems to be a little more adaptable when it comes to policy.
The basic background is still favorable for oil
Oil should return the global oil market to the black with strong supply growth from non-OPEC countries, coupled with further easing of OPEC + supply cuts. China and the United States are trying to put political pressure on the global oil market by freeing oil from strategic stockpiles.
Nonetheless, comments from OPEC leader Saudi Arabia suggest that OPEC members are unlikely to succumb to pressure tactics. Prince Abdul Aziz Bin Salman, Minister of Energy of Saudi Arabia, commented that it was up to the United States to release more supplies from strategic petroleum reserves. However, whether further reserve releases will correct prices will depend on the size of the reserve replenishment and how top oil importers put pressure on OPEC.
From a basic point of view, oil seems bullish as demand in 2022 could hit record highs against the backdrop of a recovery in air travel. Post-pandemic demand exceeds supply, which can be even higher as the country becomes more open. By summer, OECD inventories could drop to their lowest levels since 2000.
In addition, OPEC + reserve capacity is set to drop to historically low levels of approximately 1.2 million barrels (bpd) per day. This sets a bullish background for oil.
The main profit of gold remains on hold
Gold fell nearly 4% last year, the first annual loss in three years, despite inflation reaching its highest level in nearly 40 years. As metals do not pay interest, central banks around the world have resorted to policy tightening measures to curb inflation, giving in to rising yields. Gold could face the same dynamics as last year in 2022. This is because tightening from central banks around the world and expectations for a further stronger dollar mean that demand for investment in gold remains weak.
Nonetheless, gold has been stable so far this year, even if, contrary to expectations, central banks prepare to regain stimulus and inflation-adjusted bond yields rise. Given that more rate hikes are expected this year than the market is pricing, gold is some inflation hedging from traders who believe the central bank isn’t doing enough to reduce price pressures. You may have received.
Meanwhile, recent market volatility and geopolitical concerns surrounding Russia and Ukraine have increased the demand for safe gold.
This year’s gold is expected to remain rangebound, up to the potential for a major rise, as interest rates rise. However, at the same time, market recessions are likely to sustain gold hedging demand, and jewelery and central bank gold demand may provide additional long-term support. Strong resistance to gold can be seen near the $ 1,900-1,920 zone and strong support can be seen near the $ 1,680 level.
Positive outlook for industrial metals The supply-demand balance for most metals appears to be improving, suggesting that prices will recede from their current highs. However, it is expected to be above the long-term average. Medium-term demand forecasts are bright, as some metal inventories are low and spending on metal-intensive green initiatives is increasing.
Copper will continue to prosper in the long run
The global copper market can be bearish in the second half of the year as new supplies are on the market. Sophisticated production growth of 6% exceeds this year’s sophisticated demand growth of 1.3%. The production capacity of the Democratic Republic of the Congo-based Camoa Kakura Concentrator is expected to double in the second quarter of 2022, but Anglo American predicts that its 300,000 metric ton / year Peruvian Keraveco mine will start this year. increase.
Nevertheless, the long-term fundamentals of copper are bullish, and its demand is projected to increase by 16% by the end of 2010 to reach 25.5 million tonnes (tpa) annually by 2030. A 12% decrease from the 2021 level. In addition, current copper mines are approaching peak capacity due to ore quality and reserves depletion.
The outlook for sour iron ore
Iron ore prices have risen from a low of $ 80 per ton in November 2021 to 114 per ton in January 2022, thanks to recent measures taken by the Chinese government to accelerate investment in infrastructure to support the economy. It has recovered to the dollar by almost 45%.
However, the outlook for iron ore looks bleak, thanks to the turmoil in the country’s real estate sector and continued restraint of steel production in line with the country’s decarbonization goals. As seen in the second half of 2021, China may again be characterized by reduced steel production this year. Since iron ore is used in the production of steel, a decline in steel production will put downward pressure on the price of iron ore.
Aluminum looks strong
The aluminum market is approaching a period of structural shortage and there is no quick solution to this. This can increase the price.
Nickel is likely to continue Do well
Nickel continues to be in the limelight due to fears of shortages as demand for batteries grows and supplies face headwinds. Nickel prices have risen to their highest levels in almost 11 years as Indonesia, a major producer, has touted the idea of taxing nickel exports in the same way that metal inventories are declining. As long as these imbalances continue, prices will remain high.
Prices are expected to ease as weather conditions improve, but may be above long-term average prices. Overall, there are some downside risks to the entire commodity complex in 2022, but prices could trade at higher levels for another year when compared to historical averages. Of course, the pandemic course remains a potential risk factor, whether it is up or down.
Yogesh Khairajani is a Global Market Strategist at Century Financial.
Obtained from GBInvest February 2022 Edition
https://gulfbusiness.com/commodity-forecast-for-2022-how-gold-oil-and-industrial-metals-are-expected-to-fare-this-year/ What are the expected fares for gold, oil and industrial metals this year?