KEY COMMODITY MARKET THEMES FOR 2022

2021 was a positive year for the commodities complex, with loose monetary and fiscal policy supporting consumption of raw materials across our coverage universe . The macroeconomic backdrop heading into 2022 is far more mixed, with the outlook less of a “ one-way bet .” For the energy complex, we expect both oil and natural gas benchmarks to remain well supported. For oil markets , the cost of marginal oil supply is rising, given tight-oil operators’ shift towards capital discipline. There are some parallels here with the “fiscal breakeven” incorporated into OPEC (specifically GCC) price analysis – whilst production costs may be $10/bbl, if the budget breaks even at $70/bbl, Saudi Arabia will protect a price floor around that level. In the same way, tight oil operators need to service the balance sheet and distribute earnings to shareholders before deploying growth CAPEX. For natural gas markets , the inelasticity of European gas supply sources to higher prices will persist into 2022. With expectations for the Nord Stream 2 pipeline’s in-service date pushed to later in the year (well into Q 3 -22), TTF will be required to price for demand destruction well into 2022. For Henry Hub, muted production growth coupled with robust export demand will continue to support prices above the traditional “shale range.” For the metals complex, the year will be dominated by the normalisation of the demand side from the bumper year of consumption recorded in 2021 , deferred from 2020 . Whilst Chinese monetary pol icy i s likely to support demand as the PBoC embarks on a loosening cycle (counter to the rest of the world) , the desire to deleverage and allocate resources away from the real estate sector will hurt base metals demand. In regard to gold, higher US yields and declining inflation will see prices drop in 2022.