Credit ratings agency Moody’s has cut its 12-month price outlook for key mining commodities, blaming the global economic slowdown and softening demand, especially from China and Europe where a recession is in the offing.
Moody’s named essential commodities such as gold, silver, steel, aluminium and copper in a major research note on Friday which followed the release two days earlier of a separate note downgrading economic growth.
But Moody’s did say that although demand and prices will weaken, they will still remain at “historically” high levels.
Thermal coal was the only exception in the Moody’s note and the performance last week saw prices jump more than 5%, while LNG prices sold off along with oil, copper, gold and silver.
In the earlier paper, Moody’s cut its forecasts for Group of 20 (which includes Australia) economic growth to 2.5% this year and 2.1% in 2023, which represents a sharp slowing from the 5.9% growth seen in 2021.
Moody’s new forecasts for major commodities came too late to impact trading on Friday.
“China is a major consumer of base metals, coal and iron ore, and the largest steel producer globally,” said Barbara Mattos, Moody’s senior vice-president said in a release.
“A slowdown in the country’s economic growth would reduce demand across the metals and mining sector.”
She said volatile prices were “decreasing from the peaks of late 2021 and early 2022 but will remain historically high.”
Alongside the lowered price expectations, Moody’s said supply would remain tight for most base metals during the coming 12 months. Production has lagged demand, and supply chain issues have further disrupted production.
While gold is often seen as a hedge against inflation, Moody’s noted that rising interest rates and bond yields also increased the opportunity cost of holding gold, which yields no interest, reducing its value.
That’s been the factor driving gold and silver prices lower for much of this year, especially since June.
Price assumptions for aluminium, copper, gold, silver, steel and metallurgical coal were revised down, reflecting the weakening demand resulting from the global economic slowdown
Moody’s also lowered the medium-term price sensitivity range for steel in Asia which in turn is bad news for iron ore which slumped under $US100 a tonne late last week for the benchmark 62% Fe fines product shipped from WA’s Pilbara region to China and other markets.
Moody’s raised its 12-month price assumption and medium-term price sensitivity range for thermal coal.
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Last week saw metal prices again weaken – from iron ore, to copper, gold and silver.
Copper was especially soft and prices shed 7.4% on Comex as the price slumped to a low $US3.40 a pound, 20 cents or so above its 2020 low mid-year.
Silver also shed ground on Comex with a more than 5% slump to end around $US17.77 an ounce and Comex gold closed the week off 2.7% at $US1,722 ounce after a brief dip under the $US1,700 level.
Three-month copper on the London Metal Exchange ended at $US7,633 a pound – that was up nearly half a per cent on the day but down more than 6% for the week.
The strong US dollar again played a big part in commodity prices sliding, but so did fears about demand from a weakening China and the growing threat of a recession in Europe.
The Aussie dollar regained the 68 US cent mark on Friday to finish at 68.12 US cents.
US 10-year bond yields finished at close to 3.27% as the markets accepted that the Federal Reserve’s next big move will be another rise of 0.50% or 0.75% later this month.
Unlike LNG and oil prices, thermal coal prices made gains over the week.
The price of the Newcastle ICE October contract ended at $US440.90 a tonne, close to its all-time high of $US444 a tonne for a gain of more than 5% or $US21 over the week.
Hard coking coal futures quoted in Singapore fell to $US273.67 a tonne, down from $US302 a tonne the previous Friday and the lowest price since August 17.
But iron ore futures fell to $US94.30 and the lowest the price of 62% Fe fines has been since November, 2021 when the touched a low of $US81.31 a tonne.
That was a fall of around 9% over the week and more than 20% from the most recent peak of $US118 a tonne in mid-August.
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The OPEC+ group meets tomorrow and many analysts think it will not continue with its series of cuts to the cap on oil production this time round because of the recent price slide.
Germany’s Commerzbank said in a Friday note that it thinks the OPEC+ group will signal its willingness to adjust output at short notice if required as the Saudis continue to eye a cut to try and halt the recent price slide.
Actual supply from OPEC+ is still lower than planned in August, with Angola and Nigeria primarily lower than expected, but Saudi Arabia also appears to have supplied less oil than planned during the month, the bank noted on Friday.
The hesitancy may be stemming from falling prices, as Brent crude has slid to $US93 week, which is around $US30 lower than in mid-June and US crude is down around $US87 a barrel.
Both types of crude lost more than 6% last week.
Confusion over Russian oil and gas supplies and rising US production have worried oil market traders for the moment.
Energy agencies expect an oversupplied market in the short to medium term, which is why Saudi Arabia is hinting at output cuts, particularly while Iran nuclear deal talks are underway, the bank said.
While China and India are buying cheap Russian crude, that is leaving more oil on global markets at the moment which is adding to the sense of rising supply and weakening demand.
US production is now above 12 million barrels a day, even though producers continue to cut the number of oil rigs in use.
US energy firms last week cut the number of oil and natural gas rigs operating for the fourth time in five weeks.
Baker Hughes said the US oil and gas rig count fell by 5 to 760 in the week to last Friday.
US oil rigs fell by 9, the most since September last year, to 596 which is the lowest number since early August.
However, gas rigs rose 4 to 162, the highest since August 2019 as demand for US gas and LNG (in export markets) continues to rise.
The monthly total rig count fell for the first time in 25 months in August.
US natural gas futures ended at $US8.90 per mBtu, down 2.8% in the week and under 14-year highs on Tuesday on news of Russian moves to end gas flows to Europe for the time being.
That in turn saw LNG prices in north Asia continue to weaken from the all-time highs of $US76.32 per mBtu a week ago. The price ended at just over $US48 per mBtu on Friday for a loss of more than 36% for the week.
