On the face of it was another weak week for commodities with iron ore, oil, gold and silver down.
But don’t be misled, it was in fact a big week for some of the commodities Australian is exporting every day – thermal and coking coal, liquified natural gas and some key metals, where drought and power costs have seen hundreds of thousands of tonnes of capacity taken off line this month, especially in China.
In Europe it’s a combination of the drought and rising electricity costs, in China it’s the drought and the impact of Covid lockdowns
On Saturday, China’s national observatory renewed a red alert for high temperatures, the most severe warning in its four-tier warning system, as sweltering heatwaves continued in many regions of the country.
During the daytime on Sunday, parts of Gansu, Shaanxi, Henan, Anhui and other provincial regions were expected to experience high temperatures of 35 to 39 degrees Celsius, according to the National Meteorological Centre.
Temperatures in Shaanxi, Sichuan, Chongqing, Hubei, Hunan, Anhui, Jiangxi and Zhejiang may surpass 40 degrees Celsius, the meteorological centre said after issuing an orange alert on Saturday.
But late in the week while global oil prices again fell, LNG prices in the huge north Asia market hit all-time highs as the contest between buyers in Europe and China especially triggered a continuing surge.
Asian spot liquefied natural gas (LNG) prices hit a series of record highs as Japanese and Korean buyers secured supply ahead of winter, narrowing the price differential with Europe.
Russian gas flows to Europe via Nord Stream 1 are at 20% of the pipeline’s capacity and uncertainty over a complete halt is supporting a hefty risk premium on gas prices in the region, where a heatwave is further deepening the energy crunch.
In Asia, the average LNG price for October delivery into north-east Asia was estimated at $US59 per million British thermal units on Thursday), up $1US1, or 20%, from the previous week, the JKM LNG figures market showed.
Reuters said this topped estimated record levels seen in December at slightly over $US48/mmBtu.
But European gas hub prices hit the $US70s/mmBtu level last week, widening the differential to North Asian LNG cargo prices to around $US15/mmBtu.
Prices of thermal and coking coal jumped this week with thermal coal prices back close to record highs seen earlier this year at $US434 a tonne for September delivery. October coal was quoted at $US443 a tonne.
Australian hard coking coal was quoted higher Friday on the SGX futures market at $US331 a tonne on Friday, up $US75 a tonne.
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But oil prices fell last week under growing concerns about the health of the US economy and future interest rate moves by the Federal Reserve.
West Texas Intermediate crude fell 1.43% over the week to $US90.77 a barrel while Brent crude dipped 1.46% to $US96.72 a barrel.
That was after oil services company Baker Hughes revealed that US oil companies cut the number of oil and natural gas rigs for a third week in a row last week
The US oil and gas rig count fell by one to 762 in the week to August 19.
Baker Hughes data showed that was the first-time drillers cut the rig count for three consecutive weeks since July 2020.
US oil rigs were unchanged at 601 this week, while gas rigs fell one to 159.
Total US output from the major fracking areas will rise 141,000 barrels per day (bpd) to 9.05 million bpd in September, the highest since March 2020, according to an update from the Energy Information Administration (EIA).
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Comex gold futures fell 2.8% last week to $US1,747 an ounce last week while Comex silver fell a larger 7.8% to $US19.056 an ounce. Comex copper rose 0.2% though to $US3.68 a pound.
In London, LME copper regained the $US8,000 a tonne level despite more weak data from China.
Nystar will close its zinc smelter at Budel in Holland, while Norsk Hydro’s aluminium smelter in Slovakia will close later this year as well with rising electricity costs the common factor.
But according to the industry groups, those closures are just the latest in a growing range of similar actions across Europe – and now China.
Eurometaux, a metal processing trade body estimates that half of the EU’s aluminium and zinc output has already been lost from curtailments and closures this year, because of surging electricity prices.
In wider Europe, which includes Norway, Iceland and the UK, consultancy CRU expects further disruption to cause zinc production to tumble about 10% to 2.2 million tonnes in 2022 over the previous year and aluminium production capacity to fall 20% to 3.4 million tonnes compared with last September.
Meanwhile power restrictions in China have shuttered at least 500,000 tonnes per year of zinc smelting capacity, consultancy CRU Group said on Friday, with production losses expected to reach 5,000-6,000 tonnes a week.
China’s southwestern Sichuan province ordered industrial plants to suspend production from August 15 to August 20 to prioritise residential power supply amid its worst heatwave in 60 years.
All zinc smelters in Sichuan halted production early this week, and a small smelter based in neighbouring Hunan province also stopped operations in the following days, according to CRU Group.
Total capacity affected by the outages is at least 500,000 tonnes a year, a CRU analysts said, and follows deeper production cuts in Europe due to sky-high energy prices.
CRU said the outages in Sichuan are only a small percentage of the country’s near-7-million tonne capacity, and are temporary.
Sichuan produced 350,000 tonnes of refined zinc in July, according to Chinese state-backed research house Antaike.
