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06.07.2022 18:27 News >> Sharp Fluctuations Dominate Commodity Market In H1

Sharp Fluctuations Dominate Commodity Market In H1

Metal prices fall, energy prices increase in 1st half.

In the first half of 2022, a fluctuating course with sharp movements dominated the commodity market globally.
Commodity prices increased due to supply risks arising from the geopolitical developments escalating with the Russia-Ukraine war, the COVID-19 pandemic measures in China, and the concerns about demand.
Central banks' monetary tightening decisions, especially the Federal Reserve's shift towards it, had also a negative impact on commodity prices.
Downside pressures also prevailed in the commodity market, with central banks raising interest rates and prominent recession concerns.
The announced macroeconomic data continues to point to the strengthening of the recession risk, especially for the US economy.
Declines in metals
In the first half of the year, there was a downward trend both precious and base metals.
In this period, gold depreciated 1.2%, silver 12.9%, platinum 7.4%, while palladium gained 1.7%.
The demand decreased for precious metals, while it increased for US dollar on a global scale with a fear that more hawkish policies may be required in the fight against high inflation.
The price rise in palladium was fueled by increased risk perception and concerns about the supply chain amid the sanctions against Russia by the US and Western countries.
Base metals also fell sharply; copper decreased by 14.8%, lead by 17.3%, aluminum by 5.7% and zinc by 7.1%.
Analysts said the weak recovery in European economies and rising energy costs are reducing demand for metals.
Copper is an indicator of global economic activity, especially in industrial production.
Demand for copper decreased significantly due to increased concerns about recession as well as geopolitical risks.
Sharp rises in energy
Contrary to metals, sharp increases were observed in energy commodities in the first half of the year.
Concerns that production would not be able to meet the demand prevailed due to increased risks to energy supply along with geopolitical risks.
In the January-June period, the price of Brent oil per barrel increased by 40%, and the natural gas trading in the New York Mercantile Exchange increased by 45.4%.
The price of Brent oil per barrel in the international markets had exceeded $130 previously due to the concerns that the embargo of the US and European countries on Russian oil would narrow the supply.
The strike of an Aramco oil refinery in Saudi Arabia also triggered the rise in Brent oil's price.
Oil and gas prices also rose after the Russian energy company Gazprom stopped natural gas deliveries to Bulgaria and Poland as they did not comply with the payment in Russian ruble.
Less-than-expected natural gas storage and decline in production in the US led to a rally in natural gas prices during the first half of 2022.
Fluctuating course in agricultural commodities
A fluctuating course was also observed in agricultural commodities in the first half of the year, which were among the commodity groups most affected by the Russia-Ukraine war.
The disruption of deliveries along with geopolitical risks and adverse weather conditions resulted in sharp price rises.
During this period, wheat trading on the Chicago Mercantile Exchange gained 14.7%, corn 4.5%, soybeans 8.9%, and rice 9%.
While coffee rose 1.8%, cotton lost 12.2%, cocoa dropped 7.1%, and sugar decreased 2%.
Concerns over a supply shock in one of the world's biggest wheat warehouses due to the Russia-Ukraine war pushed wheat prices to record levels.
Countries' implementing protectionist policies amid geopolitical risks was among the important factors that triggered the increase in prices.
According to analysts, the war-induced rise in wheat prices increased the concerns over food shortages in the Middle East and Africa.
Rising energy costs also put pressure on prices, causing upward trend.
Rising oil prices was one of the main factors in the rise in corn prices.
Dry weather conditions in South America were effective in the soybean price rise. The increase in US exports and rise in China's soybean imports from Brazil also increased prices.
The news that Russia and India will impose restrictions on rice exports, and the COVID-19 closures in China caused concerns in the rice supply.
The increasing concerns about weather conditions in Brazil affected coffee prices.
Cotton, which is another indicator of industrial activity in the world, was one of the commodities that fell the most after the Fed increased interest rates.
The world's largest sugar producer, Brazil, took measures to keep oil prices low, causing a decline in sugar prices.
Analysts said decreases were seen in cocoa prices, with the expectation that production could increase and there may be an excess supply with the increase of precipitation in Ivory Coast.
Writing by Gokhan Ergocun -



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