Commodities Update

Published: Tue 24 January 2023
Updated: Wed 25 January 2023
By steve

In Markets.

2023-01-24

Commodities

I’m late with ‘a year in review’ post, but I think it’s worth looking back a year from now, to see what’s happening in commodities markets.

The winners

Coal

The dirtiest, most carbon intense source of energy has had a stonking year! US coal is up 60% YoY. I guess it’s all those mothballed coal-fired power stations that had to be started up because, well, Ukraine and stuff. Heating Oil (30% YoY) has done pretty well too.

Lithium

The lightest metal has had a great year. Up 30%. The story is pretty clear: EVs are here to stay. My best guess its that it has further to go. Cobalt, also used in battery manufacture, crashed in price. Be careful trading this stuff! Molybdenum was up 64%, but it’s classified as an ‘industrial commodity’, so not a ‘metal’, even though it clearly is. A quick bit of research suggests that it’s used a lot for high-performance steel, of the sort used to make tanks and missiles. This might have something to do with the spike in price. It’s also used to make the catalysts used in oil refining. Uranium eked out a gain of 8.5%. Lots of pundits have great hopes for it, but so far it’s vey meh, in terms of performance.

Potatoes

Yup, the humble spud is a clear winner in the agricultural commodity space. It’s up 38%, well ahead of the runner up, orange juice (31%) and the bronze medallist, rice (up 22%). I guess the carbs have it. Eggs in the US have gone up in price by 220% YoY. I suspect that avian flu is to blame.

Nuclear Power

Well, power from nukes is not traded as a commodity, but it’s interesting that the cost of electrical energy in France went up by 30%, whereas in the rest of Europe (including the UK) went down.

The losers

We have: - TTF (Dutch) gas: down 38%, - Hot Rolled Coil Steel: down 51%, - Lumber, down 56%, - Magnesium, down 49% (but urea is down 40%, which is interesting), - Lean hogs: down 20%.

Conclusion

Predicting commodity movements, even over quite long time frames, is difficult. I heard ‘experts’ predicting huge gains for oil, urea and cobalt as well as natural gas, but all these things have failed to perform. The elephant in the commodities space, crude oil, caught everyone out: it was down a modest 5.6% over the year. I don’t think I heard a single pundit predict that.

The other issue is that some commodities are more volatile than others. It would have been better to compare ‘Z scores’ (moves scaled by historical standard deviation), but the site I got these from doesn’t do this for me, and I couldn’t be bothered to get the volatility and do it for myself, with the result that the winners and losers are probably just the commodities with the most volatile prices. It’s the same with countries GDP: South Sudan either comes top or bottom in the league of percentage change in GDP.

Source

I did my research at Trading Economics. Their tables are downloadable; I’d have liked to include a table here, but I am on the free tier, so I’m not able to export data.

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