Commodity prices: thermal coal, lead load from LNG as copper and iron ore fade in July



In July, commodity prices ended largely higher, with the exception of iron ore and petroleum.

Thermal coal and LNG were among the top performers, as this chart from the Commonwealth Bank research office shows:

Raw material prices for July. Source: Commonwealth Bank

Brent crude up for four consecutive months

Brent crude rose nearly 2% in July, its fourth consecutive monthly increase.

Forecasts released by majors Exxon Mobil and Chevron last week indicated that the market would remain tight, analysts said.

On the ASX, a merger project for Oil search (ASX: OSH) valued at $ 22 billion could be the biggest deal on the Australian stock exchange this year.

Santos (ASX: STO) improved its offering for OSH and now offers 0.6275 new Santos shares for each Oil Search share, which values ​​each OSH share at $ 4.52.

The offer appears to have found favor with the OSH Board of Directors.

Copper drops for two consecutive months from record highs

Copper prices fell 7% in July after falling 8% in June, after record prices a month earlier.

However, Citi has improved its near-term outlook in light of recent massive sales and remains bullish on pricing over the next 3-6 months.

The short-term supply risk is increasing after the recent strikes in Chile. BHP’s Escondinda copper mine could be at risk if government-led negotiations fail to appease Chilean workers.

In the smallest capped space, Sandfire Resources (ASX: SFR) has obtained the operating license for the Motheo copper mine in Botswana and is now ready for full-scale construction of the $ 279 million ($ 364 million) project.

Preliminary results of Golden Mile (ASX: G88) A helicopter electromagnetic (HEM) study of the company’s Yarrambee project in Washington state looks promising – with 48 high priority base metal targets identified.

Thermal coal increased in July

The rise in thermal coal in July is mainly linked to a hotter-than-usual summer in North Asia.

Glencore, the world’s largest producer of thermal coal for the maritime export market, also contributed to the increase in the price of coal, with production falling 19% in the first half of FY21, as part of its plan to reduce coal production in Australia.

A parabolic rise in spot market prices for alternative-generated fuel gas has also pushed some electric utilities into the thermal coal market.

Electric utilities in Japan, Korea and Taiwan have turned to thermal coal as a cheaper alternative to liquefied natural gas (LNG) whose prices have skyrocketed.

China’s coal supply, meanwhile, is experiencing the most acute shortage since 2011, which is exacerbated by its unofficial ban on Australian imports.

There are a number of ASX coal companies that provide exposure to the thermal coal market including, BHP (ASX: BHP) with its Mount Arthur mine in NSW, Terracom (ASX: TER) with its Queensland Blair Athol mine, and Yancoal Australia (ASX: YAL) with its portfolio of NSW Hunter Valley mines.

Whitehaven Coal (ASX: WHC), at the same time, released its quarterly report for June, promising investors that 10-year highs in thermal coal prices were poised to bring greater cash flow.

LNG lifted on warmer temperatures

Spot prices for LNG delivered to North Asia rose in July, fearing warmer-than-usual temperatures in the region could push up demand.

Gas shortages in Europe also mean that competition for LNG cargoes has intensified last month.

According to the ABC report, the level of gas shortage in Europe is now around 56% of capacity, compared to 71% on average over five years.

Disruptions at export terminals in Peru and PNG also exacerbated the tight supply.

On the ASX, Impact energy (ASX: STX) waits behind the scenes and has just completed production testing of the West Erregulla 4 well, as part of its West Erregulla assessment campaign (Perth onshore basin) in the Kingia sandstone.

Talon Energy (ASX: TPD) received approval from the Mongolian government in July, which will allow it to explore one of the most promising coal gas pools in the world.

The area covers 8,400 km2, and is less than 20 km from the Sino-Mongolian border and close to the gas transmission and distribution network of northern China.

Iron ore falls on China’s crackdown

Iron ore prices fell sharply towards the end of July amid demand concerns in China.

The ABC reports that Chinese policymakers are seeking to limit the growth of steel production to reduce emissions.

The Chinese government can be quietly satisfied after sentiment around cutbacks in steel production finally pushed the price of iron ore down, hammering it 7% to no more than US $ 180 / t on Friday.

On the ASX, Fortescue (ASX: FMG) and Mineral resources (ASX: MIN), were the large caps most affected by the decline.

More sensitive iron ore miners and explorers have widely fluctuated between 5-20% decline.

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