Commodities corner: Taking ones lumps

Unlike equities, up to last week commodities had spent much of July on the slide, replicating the June quarter.

After the post-invasion surge in late February through to mid-May, the prices of many commodities have weakened.

Copper and other metal prices eased as did iron ore, gold and silver. Wheat and other rural commodity prices also lost ground as well.

But then, as the Fed pushed up rates by 0.75% and traders claimed to see signs of an easing in the hawkishness of the central bank and governor Jay Powell, attitudes changed.

Commodities stiffened then rose, the US dollar weakened, US bond yields eased, equities jumped and suddenly it was a party again, albeit a somewhat muted one.

Still July ended up as a weak month.

US West Texas Intermediate crude oil prices fell 6.75% in July, ending under $US100 a barrel at $US98.62. Brent crude sagged 4.2% and closed at $US110 a barrel.

Those losses were trimmed by small gains on Friday ahead of the next OPEC+ meeting on August 3 (Thursday), which will set projections for global supply in the next couple of months.

Expectations are that Russian production should fall in the coming months (or be diverted to Russia), partly offset by the rise of Libya, whose supply should increase a 800,000 barrels a day to 1.2 million barrels a day. Any Russian crude sold to China will free crude from other former Chinese supply sources for the global market.

US oil rig numbers rose in July for the 24th month in a row. After no move the week before, rig numbers rose 6 last week to a total of 605.

Compared to a year earlier, the number of oil rigs was up by 220. The number of US gas rigs last week rose by 2 to 157.

Baker Hughes said that puts the total rig count up 279, or 57%, over this time last year.

On the gas side, prices reached new highs this week in Europe.

The Dutch benchmark TTF jumped to over EUR 200/MWh at the highest point of the week. Russia continues to put pressure on prices by reducing flows through Nord Stream 1 pipeline to an estimated 20% of normal.

US gas futures jumped more than 51% in July alone.

Metals prices rallied in the last week of July, helped in part by a weaker greenback and a weakening in the US 10-year bond yield.

Some mining companies, such as Freeport-McMoRan, have warned that they cannot continue to operate certain unprofitable mines.

Rio Tinto, BHP, South32, OZ Minerals, Anglo American are among the major mining companies becoming concerned about rising costs and labour shortages due to Covid infections.

On the LME, copper ended around $US7,925 a tonne, up 2.4% for the week. That was up more than 7% for the week but still down 3.7% for the month.

The Comex price in New York ended at $US3.57 a pound down around 3% for the month but up more than 8% for last week. That left copper down more than 19% for the year to date.

Chile’s state-owned copper giant surprised with news of a fall in output in the June quarter and a new forecast for a fall in yearly production.

Codelco’s production cut was just the latest from major copper groups.

Glencore cut its copper forecast for 2022 because problems in central Africa and Australia where Covid related absenteeism is hitting production from its Mount Isa operations. The cut – the second for its copper output this year, is now around 140,000 tonnes.

Vale, the big Brazilian miner cut its 2022 copper production forecast by 4%. OZ Minerals and Newcrest both reports small falls in output in their June quarter reports – OZ Minerals will produce fewer tonnes for all of calendar 2022.

Codelco, the world’s biggest producer, reported output of 371,000 tonnes of copper in the second quarter, down from 409,000 tons a year earlier.

Chile’s copper commission projected a 3.4% annual drop in domestic production amid declining ore quality, water restrictions and union protests.

Comex gold rose 2.20% to $US1,762 an ounce on Friday but still lost more than 2% for the month.

Comex silver eased 0.6% over the month to end at $US20.32 – up 1.6% for the day and more than 9% for the week.

Iron ore prices eased to $US115.10 a tonne according to the Singapore Exchange (SGX) commodity futures market.

That was down slightly from $US118.34 at the end of June. The price rose around 12% last week.

Australian hard (premium) coking coal fell under $US200 a tonne last week for the first time in months to trade around $US198 a tonne according to the SGX.

Australian thermal coal, though, continued to trade around $US380 to $US400 a tonne, depending on the month.

LNG prices jumped to four-month highs last week in northern Asia around $US48 a Million British Thermal Units (MBtus). That was due to Russia’s cuts to gas deliveries into Europe.

Wheat eased as Ukraine and Russia signed an agreement on grain exports to Turkey, a step forward that should allow Ukraine to ship its wheat from the port of Odessa.

But prices rose after a Russian bombardment of the same port last weekend saw new fears about the respect of this agreement.

Wheat prices have recovered in Chicago, at 811.75 US cents a bushel. That was up more than 7.4% for the week but still down over 8% in July.

Sugar prices lost nearly 5% for the month to end around 17.56 US cents a pound.