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Commodity price volatility 'here to stay' amid geopolitics, energy transition challenges: Trafigura CFO

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Commodity price volatility 'here to stay' amid geopolitics, energy transition challenges: Trafigura CFO


China risks, renewable energy upheaval in play

Post-war price volatility may have peaked

But fundamental problems remain: Mercuria

  • Author
  • Robert Perkins
  • Editor
  • Alisdair Bowles
  • Commodity
  • Electric Power Energy Transition LNG Natural Gas Metals
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  • Battery Materials Cobalt copper
  • Topic
  • Coronavirus and Commodities Energy Transition Europe Energy Price Crisis War in Ukraine

Global commodity markets are facing increased price volatility in the coming years as lingering geopolitical concerns and the rush to low-carbon energy continues to stress supply-demand fundamentals, Christophe Salmon, the chief financial officer of independent trader Trafigura, said March 22.

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Most global commodity traders enjoyed a third straight year of record earnings in 2022 after surging market volatility in the wake of Russia's invasion of Ukraine boosted trading earnings already elevated due to market dislocations in the wake of the COVID-19 pandemic.

But ongoing supply and demand risks from Russia and China and supply chain upheaval from electric mobility and renewable energies means volatility across commodities markets could persist for longer, Salmon said.

"I believe that volatility in the commodity market is here to stay in terms of the consequences of the geopolitical situation. I'm not only talking about Russia but also China," Salmon told the FT Global Commodities Summit in Lausanne. "I'm talking about the energy transition, which intrinsically will probably trigger more volatility into a number of markets."

Salmon pointed to booming demand for battery metals, such as copper and cobalt, amid constrained supplies and low levels of inventory globally. The renewable energy boom will also create trading challenges, he said.

"I can take the example of the electricity market. More and more electricity will be produced from renewable sources which means that this is more volatile intrinsically," Salmon said.

Peak volatility?

Other top commodity traders speaking at the event, said they expect lower commodity market volatility in 2023 following a year of extreme price movements in the wake of the Ukraine war.

Mercuria's CFO Guillaume Vermersch, noting that Mercuria and its peers had benefited from navigating the "extreme" price volatility, said this year would be a bit different, even if many of the same factors remain in play.

"This year is a different landscape. We move away from an extreme pricing situation as I think a lot of things have been anticipated ahead of 2023," Vermersch said. "[But] the fundamental problems are not solved. We are still facing a war situation in Ukraine, we have lots and lots of projects that didn't really come on stream and in terms of the production of renewable electricity, we have a certain level of inventory and those levels really will evolve... so volatility and intrinsic volatility remains."

Vitol's CFO Jeff Dellapina concurred that much of the market price turmoil last year was "anticipatory" with supply energy supply shock fears avoided, particularly in Europe's gas and LNG markets.

"I think a lot of that knowledge by the markets, that demand destruction will occur and buyers can respond to high prices, probably put a lid on things. So there's a lot of volatility compression now," Dellapina said.

Europe has turned to LNG in ever-increasing volumes to replace lost Russian pipeline gas. Spot gas prices across Europe hit record highs in late summer but demand destruction, a jump in LNG imports and a warm winter have seen LNG prices in the region collapse.

Platts, part of S&P Global Commodity Insights, assessed the DES Northwest Europe marker for LNG delivery in January at $12.03/MMBtu on March 21, down from a high of $74.48/MMBtu in August.