Commodities may be on course for further declines in the second half of this year amid diminishing economic growth in China and a pullback in the US money supply. Meanwhile, momentum is building behind shale producers in the US, and the price of rice continues to climb. Glencore Plc is set to report first-half results on Tuesday.
(Bloomberg) — Commodities may be on course for further declines in the second half of this year amid diminishing economic growth in China and a pullback in the US money supply. Meanwhile, momentum is building behind shale producers in the US, and the price of rice continues to climb. Glencore Plc is set to report first-half results on Tuesday.
Here are five notable charts to consider in global commodity markets as the week gets underway.
Commodities Index
The aftermath of the most aggressive global central-bank tightening in history could burden commodity prices in the second half. The Bloomberg Commodity Spot Index — which tracks futures contracts for everything from oil to copper and wheat — spiked along with an unprecedented US money supply surge to the 2022 peak that’s now unwinding. Markets fueled by excess liquidity often see a slide once that glut reverses, according to Bloomberg Intelligence’s Mike McGlone. The two have mostly tracked since the end of 1999, emphasizing the propensity for dollar-denominated assets to advance because of the supply of the currency. What’s notable is the deflationary nature of broad commodities as shown by the greater appreciation in the price of gold.
Â
Oil Shale
Some of the biggest US shale producers are upgrading their production forecasts after a surprise boost in well performance due to advancements in drilling techniques. That comes as explorers are finally seeing record costs come down in key categories like pipes and rigs — as well as wages — which should provide tailwinds going forward. While weaker commodity prices have been the story so far this year, global oil supplies are tightening thanks to production cuts from Saudi Arabia and Russia, pushing up crude prices in recent weeks. That could put more pressure on explorers to add rigs in the second half. Drills targeting oil have dropped more than 15% this year to the lowest level in 16 months.
Â
Metals
Several years of huge profits at Glencore have left the commodity giant with debt hovering around zero, and investors will be looking for details of what the Swiss company plans to do with the cash. Glencore has been rushing to secure access to as much copper and lithium it can ahead of a suspected surge in demand for the metals critical to the energy transition. After being rebuffed — for now — in its attempt to buy Teck Resources Ltd., Glencore just doled out $475 million for full ownership of a copper project in Argentina. The deal may prove prescient, with BloombergNEF expecting demand for copper to grow fourfold by 2050. Copper has been trading mostly sideways in recent weeks amid uneven economic data in the US and China. Barrick Gold Corp. also reports results on Tuesday.
Â
Agriculture
Keep an eye on rice, a food staple for billions around the world. India’s decision to ban the export of non-basmati white rice opens the door for other producers to grab some market share, with Vietnam — the third largest exporter — saying it will likely exceed its shipment target for the year. Even so, it has a long way to go to catch India. Thailand, the second-largest shipper, has urged farmers to reduce rice plantings due to drought, while similar considerations are being made in Indonesia. Prices of the grain have spiked since India’s move, with Thai rice jumping to a three-year high last month. More gains are likely.
Â
Jet Fuel
Airlines are looking at cutting emissions by using what’s known as sustainable aviation fuel, which is typically made from waste or vegetable oils. A higher cost of production globally for the cleaner fuel will keep it at a premium to conventional jet fuel and that will have to be paid for by consumers or governments, according to research firm Redburn. The US Inflation Reduction Act contains a SAF tax credit, but that will not fully bridge the gap, said Peter Low, an analyst at the researcher. As of the end of July, SAF in northwest Europe was triple the cost of traditional fuel, data from Argus Media show.
–With assistance from Rachel Graham, David Wethe and Kevin Crowley.
(Refreshes copper chart with Monday trading.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.