ICG Commodity Update – December 2024

The ICG Commodity Update is our monthly published comment on the energy, industrial metals and precious metals market.

 

Energy

The oil market remains highly divided and cutting through the noise is crucial. The IEA predicts a large 950kboe/d inventory build for 2025, while the EIA anticipates a modest draw of 80kboe/d. Historically, IEA forecasts of large builds have often failed to materialize. Since OPEC restricted media access to its meetings, mainstream coverage has leaned bearish. Critics argue that OPEC’s production cuts have benefited US producers, raising concerns that OPEC might flood the market to undercut shale. However, a similar attempt by OPEC a decade ago backfired, costing the group billions as US production proved more resilient than expected. Learning from this, OPEC+ has taken a more cautious approach, extending production cuts until March 2025 and slowing monthly supply increases to 138kboe/d, reducing 2025 supply growth by 840kboe/d. Compliance from Kazakhstan and Russia has also improved under Saudi pressure, though its longevity remains uncertain. Despite frequent predictions of a US shale production peak, output continues to grow, albeit more slowly. However, rising gas output relative to crude is signaling maturing shale basins. Indeed, over the past 9 years, 41% of US production growth came from natural gas, with oil contributing only 28%. With oil prices hovering ~$70/bl, many producers have scaled back capex to prioritize free cash flow over expansion. Global demand is expected to rise by 1.3mboe/d in 2025, with China and India leading growth. India’s demand increase is forecasted at 330kboe/d, up from 220kboe/d in 2024. Despite ongoing concerns about China’s real estate sector, stimulus measures and growing demand for petrochemicals are likely to sustain consumption. Additionally, China exported 4.5m cars in 2024, incl. 3.1m ICE vehicles. This surge in affordable ICE exports could fuel demand growth in emerging markets, where car ownership is becoming more accessible. Interestingly, despite widespread fears of a glut, inventory trends and time spreads, which remain in backwardation, suggest strong near-term demand and no imminent oversupply. Geopolitical risks are also a critical factor heading into 2025. Trump’s return to power is expected to lead to tougher sanctions on Iran. Finally depressed sentiment, coupled with attractive valuations and high dividends, makes oil and gas equities a compelling contrarian opportunity.

 

Industrial Metals

Global resource industries are at a crossroads, driven by competition, policy shifts, and the push for sustainability. Boliden AB is acquiring zinc and copper mines in Portugal and Sweden for $1.52 billion, nearly doubling its zinc output while boosting copper supplies for its smelters. This strategic move ensures supply security as smelting margins face strain. At the same time, Lundin Mining is selling these assets to focus on growth in Latin America. In the US, revised hydrogen tax credits aim to establish leadership in clean energy. The Biden administration expanded eligibility to include nuclear power and carbon-captured natural gas, alongside renewables. These changes promise to accelerate domestic hydrogen production, critical for decarbonizing heavy industries. While some environmental groups applaud the revisions, others caution against potential loopholes that could enable polluting practices. Meanwhile, China is tightening export controls on advanced lithium and battery technologies to protect its dominance in the electric vehicle supply chain. The restrictions target processes like lithium refining and cathode production, crucial to high-performance batteries. While the curbs bolster China’s grip on these resources, they intensify trade tensions, particularly with the US. Chile’s state-owned Codelco, the world’s largest copper producer, is making strides in its recovery after years of underinvestment. A strong December output reflects management changes and progress on delayed projects. With plans to regain peak production levels by 2030, Codelco is also expanding its role in lithium production to support the energy transition. However, regulatory challenges continue to disrupt the sector. In Kazakhstan, uranium production at the Inkai joint venture between Cameco and Kazatomprom has been suspended due to delays in securing approvals. While the halt is not expected to impact long-term production targets, it highlights operational vulnerabilities in a tightly regulated industry. These interconnected developments reveal the global race to secure critical resources for a greener future. Companies like Boliden and Codelco are reshaping operations, while nations such as the US and China are leveraging policies to dominate emerging clean energy markets. This competition underscores a broader shift toward sustainability, with geopolitical tensions and regulatory complexities shaping the path forward.

 

Precious Metals

The gold industry is navigating a critical period marked by mergers, acquisitions, and strategic shifts, driven by economic and geopolitical risks. The Trump administration’s potential policies, including higher tariffs and a widening federal deficit, could fuel inflation, prompting increased demand for gold as a hedge. Additionally, concerns around artificial intelligence and quantum technologies disrupting markets may weaken the dollar and exacerbate fiscal instability, further boosting gold’s role as a safe asset. Central banks, especially in Eastern Europe, are significantly increasing their gold reserves. Poland, the world’s largest gold buyer in the second quarter, is acquiring gold to mitigate risks from Russia’s invasion of Ukraine and other geopolitical uncertainties. Similarly, the Czech National Bank is diversifying its national reserves, with gold playing a crucial role. This growing trend highlights the importance of gold as a defensive asset for countries facing external shocks and historical conflicts. On the corporate front, gold mining companies are adjusting their strategies in response to the soaring price of gold. Northern Star Resources has acquired De Grey Mining in an all-share deal to secure more supply, particularly focusing on the Hemi project in Western Australia, which is set to become one of the country’s top gold mines. Newmont Corporation, following its acquisition of Newcrest Mining, is divesting non-core assets, such as the Éléonore mine, to focus on high-margin, long-life assets. Barrick Gold, however, is focusing on organic growth, particularly with its Fourmile project, which promises to significantly enhance its reserves in a major gold-producing region. Goldman Sachs has raised its gold price forecast by 19%, predicting it could reach $3,150 per ounce amid growing concerns over U.S. fiscal sustainability and inflation. Analysts expect that inflation, geopolitical risks, and potential U.S. policy shifts — such as higher tariffs or energy disruptions — could further drive demand for gold as a hedge against these uncertainties. The report also emphasizes the role of commodities in investment portfolios, with gold and oil offering crucial protection against inflation and economic volatility. In summary, the gold market is set for continued growth, driven by central banks’ increasing gold acquisitions, strategic adjustments by mining companies, and the anticipation of rising gold prices. With global economic risks looming, gold is poised to maintain its appeal as a safe haven.