Fitch Expects Asia LNG, US Henry Hub Natural Gas, Tin and Lithium to Average Higher in 2022

Fitch Solutions In its latest industry report expects Asia LNG, US Henry Hub natural gas, tin and lithium to average higher in 2022. Fitch expects most other global commodity prices to pull back in 2022 from current levels. Fitch Solutions expects strong prices in 2021 to incentivize production in 2022, in particular in agriculture. The energy crisis in Asia and Europe and the shift towards Electric vehicles puts a bid on related commodities for the most part.

Fitch Solutions said developing markets in particular will record stronger-than-usual growth in 2022. Fitch forecasts the global economy to grow by 4.1% in 2022, well above the 3.1% average recorded between 2015 and 2019. This however is a slowdown from the 5.5% it estimated for 2021, which will put some downward pressure on demand for commodities.

Clearly much is dependent on the Omicron COVID variant and its effect on economic stability and growth. A more hawkish US Fed will bolster the US dollar in the coming months, Fitch says, which is another headwind for commodities going into 2022.

Out of the 27 key commodities, Fitch sees 19 of them (or 70%) averaging lower on a year-on-year basis. Most notably, Fitch sees ferrous metals (iron ore, steel), natural gas NBP, thermal coal, and oil crops (palm oil and soybean) averaging sharply lower; while it expects Asia LNG, US Henry Hub, tin and lithium to average higher.

Chinese Economy Downside Risks

“In particular, the Chinese economy is facing a number of downside risks, most importantly related to its real estate sector’s financial difficulties,” Fitch said

The ratings firm forecast a slowdown in China with GDP to ease from 7.8% in 2021 to 5.4% in 2022 due to less favorable base effects. Additionally, you have as well Beijing’s Covid-zero strategy, which will continue to curb consumption growth, a regulatory crackdown across multiple sectors of the economy and ongoing stress in the property sector. The much-maligned property sector headlined by the Evergrande collapse and contagion needs no more bad news.

“We highlight a number of risks looming over commodities in 2022, including downside risks to global economic growth, continued supply risks from Covid-19 related disruptions, uncertainty surrounding Covid-19 variants’ severity and a number of geopolitical risks, most notable the US-China relationship and the Russia-Ukraine tensions,” it said.

Source: Fitch Solutions

From The TradersCommunity US Research Desk