ICG Commodity Update – November 2024

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

 

Energy

Crude oil has traded within a narrow range since mid-October, driven by geopolitical tensions in the Middle East, waning demand from China, and uncertainties surrounding President-elect Donald Trump’s potential policies on oil supply from Russia, Iran, and the US. Despite Trump’s “drill, baby, drill” rhetoric, US oil and gas producers are unlikely to ramp up output significantly. Exxon Mobil’s Upstream President Liam Mallon emphasized that economic considerations remain the priority. “I think a radical change is unlikely because the vast majority, if not everybody, is primarily focused on the economics of what they’re doing,” Mallon stated at a recent conference. TotalEnergies CEO Patrick Pouyanne added, with some irony, “Maybe [Trump] has a magic recipe to push them to drill like mad,” noting that US producers prioritize shareholder returns over production increases. OPEC will meet on December 5 to determine production policy for early 2025. Slowing Chinese demand and rising supplies in the Americas may prompt the group to delay planned production hikes by several months to avoid a price slump. However, analysts suggest OPEC+ may focus more on compliance than on addressing market fundamentals. The International Energy Agency (IEA) warns that even canceling supply hikes might not prevent a surplus in 2025. While India could contribute to demand growth, its impact is expected to be more modest compared to China’s historical influence. Natural gas markets, particularly in Europe, are tightening as a cold start to winter drives demand and raised prices for 2024 and 2025 by +30% already in some markets like TTF. Europe remains vulnerable, with storage levels below last year’s and continued reliance on imports. While most of Europe has shifted away from Russian gas, some eastern nations remain dependent on Moscow. If winter remains mild — as it has for the past two years — global supply-demand balances should remain stable, with prices similar to recent winters. However, colder-than-expected temperatures or unforeseen disruptions could tighten supply and trigger significant price spikes.

 

Industrial Metals

The outlook for key commodities is showing a complex but optimistic picture, particularly in the context of the energy transition. While certain metals like cobalt and lithium face challenges, others like copper, aluminum, and steelmaking coal are benefiting from strong demand and strategic shifts. CMOC Group, the world’s largest cobalt miner, has expressed concern over the metal’s future in electric vehicle batteries. As lithium iron phosphate batteries rise in popularity due to lower manufacturing costs, cobalt’s role is expected to diminish significantly. CMOC’s aggressive expansion in the DRC has contributed to an oversupply, pushing cobalt prices to their lowest since 2016. Despite these bearish trends, CMOC’s close ties with battery maker CATL offer some reassurance as they aim for supply chain security, though the cobalt market faces an uphill battle in the coming years. On the other hand, lithium is seeing a revival, particularly in China, where demand for electric vehicles is spiking. Chinese subsidies have spurred a recovery in lithium carbonate prices, while a series of supply cuts from mines across Australia and China are expected to tighten the market. However, analysts caution that a surplus could emerge by 2025, depending on global demand and trade dynamics, with China’s strategic moves potentially influencing the market further. In the copper sector, BHP’s CEO highlighted the critical need for $250 billion in investment over the next decade to meet the soaring demand for copper, a key element in renewable energy infrastructure. Copper demand is projected to surge by up to 100% by 2050, underscoring the necessity of M&A to secure resources. That hunger drove BHP to spend $2bn for a stake in a copper prospect in Argentina this year, raising eyebrows over the price. Aluminum is also experiencing bullish momentum, following China’s decision to remove a tax rebate on aluminum exports. This move is expected to reduce Chinese aluminum supply, boosting global prices, especially for high-value-added products. Similarly, Russian aluminum producer Rusal’s decision to cut production by up to 13% in response to soaring alumina costs illustrates the ongoing challenges in the sector. This production curtailment, although modest in global terms, could significantly impact supply-demand balance in the coming months.

 

Precious Metals

Central banks, especially those in Eastern Europe, have significantly increased their gold stockpiles, seeking to shield against these external risks. Countries like Poland, the Czech Republic, and Serbia have been particularly active in diversifying their reserves, emphasizing gold’s role as a stable asset amid growing uncertainties, such as the ongoing conflict in Ukraine and the possibility of new US tariffs. Central banks globally are also poised to continue accumulating gold, with many expecting further increases in their reserves. The demand for gold is also being influenced by rising fears about the US fiscal situation, with Goldman Sachs projecting that if concerns about US debt sustainability grow, gold could hit $3,150 per ounce by December 2025. The yellow metal is viewed as an effective hedge against inflation and geopolitical risks, especially in times of fiscal stress or when central banks ease monetary policies. Goldman Sachs points to potential inflationary pressures under a second Trump administration, including higher tariffs, tax cuts, and defense spending, all of which could further push investors toward gold. In addition to central bank buying, gold prices are being supported by speculative flows, especially from ETFs, and a surge in demand from wealthy individuals and family offices. The metal has benefitted from a market cycle where long-term investors are positioning themselves for inflation, with gold seen as a reliable store of value during such times. On the supply side, gold production has seen a boost, with global mine output up by 3% in the third quarter, following years of stagnant growth. However, industry experts caution against expecting any sudden supply surges due to permitting and construction challenges, as well as the high costs associated with expanding mining operations. Additionally, recycling efforts have gained traction, providing a boost to gold supply. Mining companies are also strategically positioning themselves to benefit from the high gold prices. For example, Newmont recently sold its Éléonore mine in Quebec for $795 million as part of its strategy to focus on Tier 1 assets with strong cash flow potential. Similarly, other major producers, such as Barrick Gold, are focusing on organic growth, advancing high-potential projects like the Fourmile and Goldrush developments. These companies are emphasizing long-term sustainability and resource expansion in top jurisdictions, ensuring they are well-placed to capitalize on the growing demand for gold.