Commodity prices from energy and metals to agricultural products rebounded sharply in 2021, with power fuels leading the rally, driven by tight supplies and a strong economic recovery as Covid-19 vaccinations staved off widespread lockdowns.
Global demand for commodities is expected to remain robust in 2022 and underpin prices as the world economy continues to recover, although similar price jumps are unlikely, analysts and traders say.
“2021 has been characterised by a huge broad-based rally,” said Jeffrey Halley, a senior analyst at brokerage Oanda.
“Although I believe commodity prices will remain robust, I believe the rebound in 2020 and the rally of 2021 will be exceptional years, and as such I am not anticipating the same level of gains in the year ahead.”
Energy and food prices rocketed higher this year, hammering utilities and consumers from Beijing to Brussels, raising inflationary pressures.
High prices are encouraging producers to ramp up output, but some analysts expect supplies for products such as oil and liquefied natural gas to stay tight as these projects require years for production to come on line.
Energy
Record coal and natural gas prices led to a severe power crunch from Europe to India and China in 2021.
Asian LNG rallied more than 200 per cent, while Asia's benchmark coal prices doubled.
“Global LNG demand grew by 20 million tonnes per year in 2021 with Asia accounting for virtually all of this growth,” said Valery Chow, head of Asia gas and LNG research at Wood Mackenzie, adding that more than 20 per cent growth in demand from China has made it the world's top importer, overtaking Japan.
“However, persistently high LNG spot prices are likely to start dampening overall demand growth, especially in the more price-sensitive markets of South Asia and South-East Asia,” he said.
Global oil prices also recovered 50 per cent to 60 per cent in 2021 and are set to rise further in 2022 as jet fuel demand catches up.
In China, coal prices have more than halved from a record high reached in October after the top producer and consumer boosted output and tamed prices.
Metals
The power crunch in China and Europe hit aluminium production, driving prices up over 40 per cent for a second year of gains. However, it also affected demand for iron ore as the world's top steel producer China cut output.
Iron ore prices, which hit record peaks in May, crashed in the second half of the year amid strict output curbs in China. Dalian iron ore futures fell more than 10 per cent after a massive rally over the past two years.
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A ‘burner’ works on a piece of freshly cast steel as he works in the foundry at Sheffield Forgemasters. Oli Scarff / AFP -
A forgeman oversees the manipulation of a 100 tonne cylinder of of freshly cast hot steel. Oli Scarff / AFP -
The word “Sheffield” sits in the entrance gates to Sheffield Forgemasters. Oli Scarff / AFP -
An employee walks through the Forge at Sheffield Forgemasters. Oli Scarff / AFP -
A forgeman oversees the manipulation of a 100 tonne cylinder of freshly cast hot steel. Oli Scarff / AFP -
A grinder works on a freshly cast piece of steel. Oli Scarff / AFP -
A worker walks past metal shavings in the scrap yard of Sheffield Forgemasters. Oli Scarff / AFP -
A worker sets a pit for casting a steel ingot in the melt shop. Oli Scarff / AFP -
A front loader moves across the floor of the melt shop. Oli Scarff / AFP -
A grinder works on a freshly cast piece of steel in the foundry. Oli Scarff / AFP -
Burners work on freshly cast steel items as they work in the foundry. Oli Scarff / AFP -
An employee inspects engineering spares in the melt shop. Oli Scarff / AFP -
Bolts sit arranged on a shelf in the Machine Shop of Sheffield Forgemasters. Oli Scarff / AFP -
Metal shavings sit stored ahead of use in the scrap yard. Oli Scarff / AFP
Base metals are expected to outperform as energy transition will drive demand, analysts say, while supply chain bottlenecks could persist.
LME copper rose for a third year, up about 25 per cent in 2021.
“Copper demand is expected to enter its second year of expansion, especially after the recently concluded Cop26 demonstrated an increasing willingness by governments to prioritise clean energy,” OCBC economist Howie Lee said.
Rallying agriculture markets
Chicago soyabeans rose for a third year in a row, corn by nearly 25 per cent and wheat by more than 20 per cent.
Supply constraints due to adverse weather and strong demand generally boosted agricultural markets.
senior analyst at Oanda
Both Malaysian palm oil and soyabean oil added more than 30 per cent, each rallying for a third year.
For beverages, arabica coffee added almost 80 per cent, taking gains into a second year and robustas jumped 70 per cent, recouping three years of losses, as supply chain issues increased appetite.
Raw sugar rose more than 20 per cent, rallying for a third year and white sugar made similar gains as production fell in top producer Brazil because of a drought and frosts.
Precious metals prices may cool, dragged down by strong risk appetite in equities and other markets, analysts say.
Gold was largely unchanged after dropping last year and silver is set to end the year down after two strong years.
