Gas prices slump on mild winter weather and reduced demand
US natural gas prices slumped to a one-year low at $3.55 on forecasts for milder January weather replacing the frigid cold spell that saw parts of the US grind to a halt ahead of the new year. With milder weather emerging, the much-watched March-April spread – used as an indication of how anxious the market is about the availability of gas in late winter – slumped to just 7 cents having touched $1 in early December.
The slump in Europe’s gas price meanwhile continued for much of the same reasons, and during the past month the price of Dutch TTF benchmark gas has slumped and reached €65/MWH ($20/MMBtu) at one point – the lowest since October 2021. The slump has been driven by a combination of mild weather and strong production from renewables as well as reduced industrial consumption resulting in an unusual seasonal increase in inventories. Gas held in storage across Europe is currently 168 TWh above the five-year average and close to a full month of peak winter withdrawals.
With LNG imports still strong and demand down by more than 10% the continent has now ended up in a situation, unthinkable just a couple of few months ago, where prices need to stay low in order to divert LNG shipments away from Europe in order not to overwhelm local storage facilities.
Copper and iron ore receive a boost from China action to support the economy
Copper and iron ore managed to post small gains during an otherwise challenging week, where China’s messy exit from its long held covid-zero strategy has led to a surge in virus cases across the country. While the short-term demand outlook is challenged the change, as opposed to continued lockdowns, has brought forward to timing of a recovery in China – the world’s top consumer of commodities. However, with the Lunar New Year holiday starting already on January 23 this year, the prospect for a pickup is unlikely until after, perhaps not until well into spring.
HG copper survived a mid-week selling attempt after top consumer China announced further steps to support its beleaguered property sector. China-centric commodities, including iron ore, as well as the renminbi popped higher after China’s central bank and bank regulator jointly issued a directive to allow banks in cities with declining home prices to lower mortgage interests below the floor dictated current policies.
HG copper remains stuck between two moving averages with resistance at the 200-day at $3.8525 while the 50-day offers support at $3.72. A close above the first may signal a renewed attempt to challenge key resistance in the $4 per pound area, a move we see as very likely but potentially not until later in the year.