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Commodity Tracker: 6 charts to watch this year

We kick off this year's Commodity Tracker series with a look at voluntary carbon prices as well as the correlation between commodities and inflation. The unrest in Kazakhstan, oil demand growth, metallurgical coal supply and Henry Hub prices are also in focus.

1. Voluntary carbon prices expected to sustain upward momentum in 2022

Platts carbon prices

What's happening? The Platts carbon price assessments saw an exponential rise in 2021. The Platts CORSIA-eligible carbon credits (CEC), the first assessment launched by Platts Jan. 4, 2021, surged 900% over the course of the year. The Platts CNC, which reflects nature-based credits, jumped 198.92% from its launch June 14, 2021. Earlier seen to be at a substantial discount to the CORSIA segment, non-CORSIA renewable energy prices slowly caught up and were at par with CORSIA prices Dec. 22, 2021, when Platts CEC and Platts renewable energy prices were both assessed at $7.40/mtCO2e. The sharp spike in renewable energy prices in October and November 2021 was primarily due to large-scale purchases of renewable credits by crypto traders.

What's next? With governments and corporations the world over increasing their focus on net-zero and low carbon commitments, demand in the voluntary carbon market is expected to increase in 2022. Market sources have indicated that an increased supply of carbon credits is in the pipeline to meet the expected increase in demand. This is likely to keep prices moving upwards as the voluntary carbon market gains prominence as a tool for offsetting requirements.

Further reading: Platts carbon credit assessments

2. US inflation and commodities in 2022

Commodities and US inflation

What's happening? Commodities in 2021 gained 37% as measured by the GSCI broad index, with energy commodities gaining 54%. Iron ore and precious metals lagged and declined on year 23% and 4%, respectively. Commodity improvement was driven by the continuing rebound in economic growth, which globally was about 5.7% on year, along with a continuing rise in implied inflation (measured as the difference between US, 10-year treasuries and 10-year treasury inflation protected security rates, or TIPS). Global central banks are increasingly tightening monetary policies to address inflation concerns.

What's next? Commodity performance in 2022 will be driven by the fundamental balances within each product grouping. Demand for commodities will continue to normalize from the pandemic though the pace of improvement will slow from that seen in 2021, with global GDP growth slowing to 4.2%. Against this backdrop, inflation trends remain elevated, but may be near peaking. Energy price pressures also remain elevated but the year-on-year pressure will ease, even if short-term prices stabilize. The pace of monetary policy tightening remains problematic, but the degree of accommodation will decrease from what was provided during the pandemic in 2020 and 2021. Implied inflation trends may ease, which would be a headwind for commodities.

3. Kazakh unrest generates shockwaves

Key oil export routes from Caspian region | Kazakhstan unrest

What's happening? The Chevron-led consortium at Kazakhstan's highest-producing crude field, Tengiz, is moving to restore normal production after contractors at the remote Caspian site joined in anti-government protests. The resource-rich nation has been rocked by unrest, centered on Almaty, 2,000 km east of the Caspian near the Chinese border. Disruption prompted an uptick in prices of flagship CPC crude. However, on Jan. 9, Tengizchevroil, comprised of Chevron, ExxonMobil, KazMunaiGas and Lukoil, said it was "safely and gradually" returning production to normal. Tengiz, with recoverable reserves of 11 billion barrels, is the largest contributor to CPC, loaded on Russia's Black Sea coast.

What's next? Markets will look for confirmation supplies have normalized. Companies involved at Kazakhstan's super-giant fields – including Italy's Eni, Shell and TotalEnergies – will be assessing a bout of instability that surprised in its ferocity, with President Kassym-Jomart Tokayev calling for assistance from a regional security group led by Russia. Tengizchevroil is engaged in a $45 billion expansion project, with other projects planned at the similar-sized Kashagan field.

Further reading: Kazakhstan unrest tests commodity power-house credentials

4. Omicron variant could slow pace, but not derail, Asian oil demand recovery in 2022

Oil demand - global and Asia

What's happening? Asia's oil product demand is estimated to have increased by 1.2 million b/d in 2021 after a contraction of 1.9 million b/d in 2020 due to COVID-19. The recovery last year had been bumpy and uneven across countries and products. Asian oil demand rose sequentially in Q4 as the region recovered from the slump earlier stemmed from surging COVID-19 cases in South Asia in Q2 2021 as well as Southeast and Northeast Asia Q3.

What's next? S&P Global Platts Analytics currently projects Asian oil demand to rise by 1.7 million b/d in 2022 in our reference case, reaching 103% of pre-pandemic levels, though the full impact of the omicron variant is still being assessed. Apart from China with a so-called "dynamic zero-tolerance" policy on COVID-19, most Asian countries are moving toward reopening despite seeing a rise in omicron cases. The risk of downward adjustment remains due to the re-imposition of restriction measures.

Further reading: Commodities 2022: Asia's oil demand revival seen resilient, OPEC+ response key

5. Growing uncertainties hound met coal market

What's happening? The seaborne metallurgical coal market entered 2022 supported by market fundamentals. Supply tightness has persisted outside of China, and the global steel demand has been evidently consistent. Market participants are eyeing the development of wet weather in east Australia and its potential impact on the seaborne price in Q1, following a year of historic volatility in 2021.

What's next? With China continuing to reject Australian cargo and the spike in COVID-19 cases in many countries, market participants anticipate growing uncertainties on the price outlook in the near- to medium-term. While coal supply has remained tight, the health of the global steel demand could be a game changer to the supply and demand equilibrium in Q1.

Further reading: Platts metals trade review

6. Henry Hub 2022 forward price curve in steady retreat at supply-demand outlook shifts

Henry Hub 2022 forward price curve in steady retreat at supply-demand outlook shifts

What's happening? The US benchmark Henry Hub forward price curve for 2022 has been in steady retreat over the past several months, falling from an average $4.65/MMBtu in early October to about $3.70/MMBtu in early January. Persistent mild weather and historically weak heating demand has been responsible for much of the decline, which has been heavily concentrated in the winter-season contracts. On the supply side, gains in domestic gas production from Appalachia, the Haynesville and the Permian Basin have pushed total US output back toward pre-pandemic highs recently, topping 96 Bcf/d in late December.

What's next? The combination of weak demand and strong production is giving a boost to previously flagging storage levels. The latest data from the US Energy Information Administration now shows an emerging surplus for the US inventory, which is expected to continue growing in the weeks ahead as mild weather persists.

Reporting and analysis by Vandana Sebastian, Alan Struth, Nick Coleman, JY Lim, Kang Wu, Jeffery Lu, J Robinson