Florence Tan by Naveen Thakral

SINGAPORE (Reuters – Commodity price movements from agricultural commodities to metals and energy rose sharply in 2021. The rally was driven by strong supplies and a strong economy as COVID-19 vaccines halted widespread lockdowns.

The global demand for commodities should remain strong through 2022. This will support the prices of commodities as the world economy recovers, though similar price increases are unlikely to occur, traders and analysts say.

“2021 has been characterised by a huge broad-based rally,” said Jeffrey Halley, a senior analyst at brokerage OANDA.

“I think commodity prices will stay strong but the rebound in 2020, and the rally in 2021 will have exceptional years. I do not anticipate seeing the same gains this year.”

This year’s rise in food and energy prices has exacerbated inflationary pressures.

Producers are able to increase their output due to high prices. However, some analysts believe that supplies of products like oil and liquefied will remain tight because these projects take years to bring on-line. (Graphic: Top energy markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/gdvzykrxypw/TopEnergy2021.png)

ENERGY

A severe power crisis in Asia, India and China resulted from record prices for coal and natural gases.

Asian LNG prices rose by more than 20%, and benchmark coal prices increased by nearly a third.

“Global LNG Demand grew by 20 Million tonnes per annum in 2021, with Asia accounting virtually for all of it,” Valery, Wood Mackenzie head of Asiagas research, said. Furthermore, China’s demand has grown more than 20%, making them the largest importer in the world.

He said that persistently high LNG spot price are likely to slow down overall demand growth in South Asia and Southeast Asia, particularly those markets more sensitive to prices.

Global oil prices also recovered 50% to 55% in 2021, with settling at $77.78 per barrel and WTI at $75.21 per barrel, and are set to rise further https://www.reuters.com/markets/commodities/global-oils-comeback-year-presages-more-strength-2022-2021-12-23 next year as jet fuel demand catches up. [nL1N2TG03Y]

In China, coal prices have more than halved from a record high reached in October after the top producer and consumer boosted output https://www.reuters.com/world/china/china-nov-coal-output-strikes-new-high-ensure-winter-supply-2021-12-15 and tamed prices.

METAL

Aluminium production was affected by the power crisis in China and Europe, which drove prices up to 40% for another year. It also had an impact on demand for iron ore, as China’s largest steel producer cut its production.

Iron ore prices fell after they reached record heights in May. However, this was due to China’s tightening of production. After a dramatic rally in the last two years, Dalian iron ore prices fell by more than 10%

Analysts believe that the energy transition will lead to increased demand for base metals, but supply chain bottlenecks might persist. Base metals should outperform.

LME increased for the third consecutive year and was up 25% by 2021.

Howie Lee, OCBC economist said that copper demand will enter its second year. This is especially since the recent COP26 showed an increase in governments’ willingness to prioritize clean energy. (Graphic: China’s main metals markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/zgpomaworpd/TopMetals2021.png)

RALLYING AGRICULTURE SALE MARKETS

Chicago soybeans rose again for the third year straight, with corn increasing by 22% while wheat rising by more than 20%.

A combination of strong demand and shortages have resulted in a boost to agricultural markets.

Soybean oil and palm oil from Malaysia grew by more than 30% each, each adding to their respective stocks for the third consecutive year.

Drinks: Arabicica coffee increased almost 80%. This was in addition to gains that were extended into the second year. Robustas rose 70% as a result of supply chain problems increasing appetite. (Graphic: Top global agriculture futures markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/byvrjmogqve/TopAgs2021.png)

The raw sugar market rose by more than 20% and the white sugar market saw similar increases as Brazil’s top sugar producer fell due to drought and frosts.

Analysts believe that precious metals may see a cooling effect due to strong investor risk appetite.

The price of gold was relatively unchanged following the drop last year. After two successful years, silver will be ending the year at a lower level.