Will the commodity market shine again in 2022? ASX-listed stocks to watch

Highlights

• Most of the commodities delivered a stellar performance last year.
• Gold faced a hard time in 2021, partly due to the booming popularity of cryptocurrencies.
• It will be worth watching if the emergence of new COVID-19 variants and the decarbonization policy will disrupt the commodity market again in 2022

While the coronavirus pandemic drove commodity prices to multi-year lows in the year 2020, the market witnessed a notable comeback and rallies in 2021. From lithium to crude oil, most of the commodities delivered a terrific performance in 2021.

A part of the credit goes to supply chain bottlenecks, which caused shortages worldwide, sending commodity prices soaring. Although supply remained constrained, rebounding demand amid gradual reopening of the economy further drove up prices in 2021.

In addition, government stimulus programs and the central bank liquidity lit a bullish fuse in the commodities asset class. Some credit also goes to the severe energy crisis encountered by Europe and China, which prompted a significant rise in prices of energy commodities last year.

It is worth noting that not all commodities had a smooth ride in 2021, like gold. Gold faced a hard time last year, recording a fall of over 4% last year, partly due to the booming popularity of cryptocurrencies.

Best performing commodities of 2021

Some of the biggest gainers of the commodities sector in 2021 include:

Attractive stock picks

In line with the remarkable performance of some commodities in 2021, investors can keep certain ASX-listed stocks on their watchlist.

1. Allkem Ltd (ASX:AKE)

Speculations are rife that the demand for lithium will continue to increase in the coming year, prompting a further rise in lithium prices. Meanwhile, a rise in electric vehicles’ adoption and decarbonization could benefit lithium prices. This could rule in favour of lithium players like Allkem, which focuses on developing lithium or potash resources in Argentina.

Recently, Allkem released its December 2021 quarterly report. The Company informed that it shipped 38,071 dmt (dry metric tonne) of spodumene concentrate (precursor of lithium chemicals) during the quarter at an average grade of 5.7% Li₂O (lithium oxide). It helped to generate revenue of US$60.7 million at an average sales price of US$1,595/dmt CIF (Cost, Insurance, Freight).

Related Read: Allkem (ASX:AKE) shares turn bullish on December quarter update

2. Santos Limited (ASX:STO)

No doubt, any prediction for the oil market seems bold at the current moment, given the recent emergence of the Omicron variant. However, the existing market forces are pointing towards a tight oil market in 2022, with demand more likely to recover to pre-pandemic levels. Any boost in the black liquid’s value is expected to be good news for ASX oil and gas producers, like Santos Limited (ASX:STO), which might benefit over the long run.

Santos has recently published its fourth quarter report of 2021. The Company observed record sales revenue, record annual production, and record free cash flow during the December quarter. The robust base business performance placed the company to gain from higher commodity prices.

Read More at Santos posts record annual production, sales revenue in 2021

3. Whitehaven Coal Ltd (ASX: WHC)

As per Whitehaven Coal Ltd (ASX: WHC), demand for thermal coal is “extremely robust” and supply constraints in key producing countries can tighten the coal market further. While share price movements might not directly correspond to rising coal prices, changes in the commodity’s value could draw attention to ASX coal stocks in 2022.

In its latest December 2021 quarter report, Whitehaven announced that it achieved coal pricing averaged A$211/t during the last quarter. This is because coal prices continued to prevail at attractive levels through the quarter. As per the Company, the prices remain well supported for the near future provided persistent supply-side disruptions and strong underlying demand.

Also Read: Whitehaven (ASX:WHC) slashes output forecast, shares drop on ASX

What to expect in 2022?

The year 2021 saw higher demand for most of the commodities amid a recovery economy. It will be interesting to see if this strong demand will continue to strengthen this year or lose momentum.

Meanwhile, it will be worth watching if the emergence of new COVID-19 variants and the decarbonization policy will disrupt the commodity market again in 2022. Rate hike cycles by central banks could spark some volatility in the commodity market amid growing inflation levels.

A potential rise in interest rates could pose challenges for gold and other precious metals due to increased competition from higher-yielding investments. Moreover, balances for several commodities could become less tight in 2022 in case supply conditions improve.

Related Read: What does 2022 have in store for commodity market?