Commodity prices climbed the wall of worries in 2021

Highlights

• The year 2021 saw several commodities reaching multi-year prices, including iron, copper, crude oil, natural gas, and many others.
• Iron ore crossed US$200/tonne on back of robust demand from the steel industry, however, prices have retracted significantly in the last few months.
• Crude oil and natural gas demand spiked significantly during the second half of 2021 as the energy crisis loomed over China and Europe.

The year 2021 has been a great one for many commodity players, with several commodities seeing a sharp surge in the prices. Be it metals or energy commodities, many of them reached their all-time high or multiyear high. For instance, lumber prices rose drastically in the USA during the year, pushing cost of houses higher. Few commodity prices have corrected sharply, but the price action has been sharp in 2021.

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The onset of the pandemic diminished the demand for most of the commodities back in 2020. The world struggled to come out of the depression induced by COVID-19. However, with vaccine roll out and staggered lifting of lockdowns the demand started to rise steeply, and supply could not keep up with the sudden spike in demand, pushing the prices to higher levels.

However, the prices of few commodities in the international market have eased in the last couple of months. The WTI oil prices have slid from US$80/bbl level, with more supplies anticipated in the coming days. Also, with new variant, Omicron, spreading at a fast rate, commodities market is expected to remain volatile in short to mid-term.

Energy Commodity, coal steals the thunder!

During the second half of 2021, China and Europe faced a severe energy crisis. The crisis hindered the industrial output as there were acute power shortages in the country. Thanks to this, the price of fossil fuels, including coal, crude oil and natural gas, rose significantly during the period.

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Coal began the year 2021 at US$69.3/t. During the peak of the energy crisis, prices reached over US$274/t in May 2021, ~300% rise in price in just five months. Coal prices have corrected from the peak and currently trading above US$140/t, 100% gain on YTD basis.

Crude oil and natural gas witnessed a strong return in demand after the slump in the initial phases of the pandemic. Crude oil (WTI) was trading around US$48/bbl in early January 2021 and amidst strong demand and controlled supply ftom OPEC+ the prices surged above US$83/bbl in October 2021. Natural gas prices crossed US$6/MMbtu in October 2021, first time since 2014.

Price movement of crude oil (Image source: Refinitiv, Analysis: Kalkine Media ®)

Industrial Metals, the rise and fall of Iron ore

Iron ore, copper, aluminium, lithium and others- the list is pretty long when it comes to industrial metals. Like in the case of energy commodities, when the industrial activities started picking pace, the demand rose significantly pushing the prices higher.

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Iron ore reached a new high of US$220/t during the June quarter, on the back of strong demand from the Chinese steel sector. When the Chinese economy started facing turmoil, the demand vanished, and the prices plunged nearly 80% from their high, and currently, iron ore is trading at US$111/t in the international market.

Price movement of iron ore (Image source: Refinitiv, Analysis: Kalkine Media)

Lithium: Metal powering the EV revolution

Lithium has become the commodity of choice for investors. The companies involved in the exploration and development of the battery metal gave multifold returns to their shareholders in 2021. The price of lithium carbonate rose nearly four times in 2021. Lithium is currently trading at CNY 230,500/t. At the beginning of the year in January 2021, the metal was trading at CNY 46,480/t.

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Copper: the transition metal

Copper has been designated as a metal for transition into the new electric era. Copper finds application in nearly all electrical devices. Hence its demand remains stable all around the year. From US$3.55/lb, the red metal jumped to US$4.775/lb amid a strong commodity supercycle during the year 2021. Currently, copper is trading at US$4.30/lb.

Commodity prices climbed the wall of worries in 2021

Bottom line

As from the data available, it could be seen that coal, a commodity used since centuries, performed well during the year 2021. Despite coal being labeled a sun set commodity, it emerged as a big winner as far as price action is concerned.

In the industrial metal segment, the demand for lithium is anticipated to remain strong with the EV sector booming. However, the price may stabilise once the supply and demand gap is balanced.

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