Commodities can be their own worst enemies when they get too far out over their skis, and we see 2022 risks akin to 2008's pump and dump. Energy prices may inch higher or collapse, the latter typical amid similar supply-shock spikes. What's different now is the U.S. paradigm shift to largest energy producer and net exporter from the top importer. Embracing technology is a primary reason, and the war and high prices should accelerate existing trends away from a world reliant on fossil fuels, notably from mercurial sources. Copper and base metals are subject to demand destruction and reversion risks along with crude oil, in addition to central banks fighting inflation. A record Corn Belt crop this year is likely, but it may not be enough to cover production lost to the war. Gold may be a primary beneficiary.

Eoin Treacy's view

Here is a link to the full report.

The oldest adage in the commodity markets is “the cure for high prices is high prices”. Under normal circumstances demand surges during prolonged periods of economic and supply struggles to keep up. The inflationary pressures high prices incur forces central banks to take action. Commodity bull markets often end with new supply reaching market at the same time as demand evaporates due to high interest rates.

The pandemic, war and sanctions represent separate challenges for each commodity, so it is difficult to draw clear conclusions about the sector as a whole. One thing that we can be certain of is commodities are late cycle movers. They are not lead indicators for the end of a bull market but their significant outperformance when everything else is experiencing stress is a late cycle signal of future trouble.

The biggest concern at present is China’s Covid-zero policy may be failing. There is an increasing body of evidence that the number of deaths in Shanghai has been massively under reported. Cases are also rising in Jilin and Fujian. The global economy is not prepared for Chinese consumer demand to evaporate or for China’s metal bashing to collapse. All the major industrial metals are heavily influenced by Chinese demand, so this is an important story to monitor. 

Copper is rightfully being championed as the metal of the future but that does not mean it will trade independently of its legacy. The price continues to range with a mild upward bias. A sustained move below $4 would be required to question medium-term scope for continued upside.

Crude oil continues to unwind its overbought condition as the USA releases 1 million barrels a day from the strategic reserve.