Commodities Tracker– Monthly Commentary

This commentary covers the key takeaways for the listed commodities. Click the (x) next to the sectors to see the respective monthly charts pack and click here for the news watch of the month.

Nuclear Energy & Uranium (x) As major economies invest in nuclear power and are concerned about the current uranium supply, miners require the current price environment to be supported for a long time to ramp up output.

In March, uranium spot prices consolidated under the $100 mark amid utilities’ buying pause and hedge funds’ profit-taking, yet prices remain at levels not seen in 16 years.¹ The uranium market continued to be strengthened by the global government’s backing for nuclear energy, with additional expansion announcements such as Ukraine’s hope to sign a deal in June to buy two nuclear reactors from Bulgaria and Serbia’s interest in at least four small nuclear reactors to start its first power production from nuclear facilities.^2,3

On the supply side, further delays are refuelling uranium markets tightness: reports of flooding in Kazakhstan, where the main producer of uranium -Kazatomprom- operates, boosted shares of competing miners.⁴

Beyond the energy transition, new nuclear energy demand growth could be found in data centres, AI, and cryptocurrency, which could double global electricity demand in three years, according to the International Energy Agency.⁵ This additional demand requires steady power. On this path, Amazon Web Services (AWS) bought Talen Energy’s data centre site near the Susquehanna nuclear reactor in northeast Pennsylvania.⁶ Talen will deliver carbon-free power from the Susquehanna plant through a power purchase agreement as AWS builds the data centre.⁷

Base Metals & Copper (x)Mining and refining cuts, growing faith in new structural green demand, the AI boom, China’s manufacturing rebound, and India’s massive infrastructure spending as factors that could continue to support copper prices.

Production cuts at mines worldwide are still increasing, with the latest 6.5% quarterly drop in output from Ivanhoe Mines at the massive Kamoa-Kakula mining complex in the Democratic Republic of the Congo.⁸ Disruptions at major mines have left Chinese smelters with a sharp decline in concentrate treatment fees, and now the question is whether they will make meaningful cuts to output to safeguard their earnings.⁹ On this path, they suggested a 5–10% reduction in production at the most recent meeting of the Chinese Smelter Purchasing Team (CSPT), with the market closely monitoring any further decision which could further support copper prices.¹⁰

Global visible inventories stayed 41% below their 5-year seasonal average despite a substantial increase of 31% month-on-month, mainly driven by China.¹¹ Due to seasonality, global inventories are also expected to decline this quarter, putting further strain on an already-stretched supply.¹²

On the demand side, China’s copper consumption seems to be showing signs of improvement. After a 0.1-point increase in February, China’s March Caixin manufacturing PMI jumped 0.2 points to 51.1, marking the highest reading in thirteen months and indicating strong momentum in manufacturing and service activities.¹³

Opportunities for significant new demand growth may also arise due to India’s massive infrastructure spending boom. A government source reported India will send two delegations to Chile next month to scout copper deposits amid rapid economic growth and energy transition plans: India plans to reach net-zero carbon emissions by 2070 and grow its renewable energy mix to 50% by 2030.¹⁴

Moreover, demand from AI data centres could further support copper’s long-term structural demand growth. Copper’s electrical conductivity, wire use, and low cost make it crucial for power infrastructure expansions. As AI computers use more electricity per square foot, data centres must upgrade their power and cooling systems.¹⁵

Gold (x) & Silver (x) Retail, central bank buying and safe haven demand amid geopolitical risks should continue to support gold prices, and a fundamental market deficit should support silver ones until a more dramatic interest rate cycle inversion allows a more persistent upside for both precious metals.

Gold appears to have emerged as a haven and rates-proxy trade due to rising geopolitical tensions in the Middle East and expectations that the Federal Reserve will cut interest rates this year. Even though markets are unsure of when and how forcefully the Fed would lower rates, gold prices have reached record highs due to confidence over the prospect of such cuts.¹⁶ However, in response to rising Treasury yields, the unexpected surge in gold prices shocked many, and a less dovish than expected Fed could trigger some correction in gold prices.¹⁷

Solid purchases by central banks and increasing demand from Chinese consumers seem to be propelling gold.For the ninth month in a row, global central banks led by India and China have increased their gold reserves.¹⁸ Official data revealed that the People’s Bank of China’s reserves continued to rise in March after 17 months of buying the precious metal.¹⁹ India, Turkey, and Kazakhstan also bought more bullion.²⁰ Despite the high prices, Chinese consumers have been stockpiling coins, bars, and jewellery to hedge against the uncertainty in the country’s real estate and stock markets.²¹

However, a robust labour market is bolstering the economy, as seen by the most significant increase in job growth in nearly a year and a decline in the unemployment rate in March.²² The latter economic readings, solid US factory data, and job openings reinforced speculation that the Federal Reserve may be in no rush to cut interest rates.²³

With gold reaching record highs again and the gold-to-silver ratio above 80, silver reached a high since May 2021.^24,25 Given the dynamics, silver may have a higher scope to break out, as it potentially offers more opportunities than gold being relatively cheaper.

Oil (x) & Gas (x) Crude seems likely to oscillate around the new higher levels amid a bullish view on fundamentals and a risk premium in the Middle East. Despite supply and geopolitical risks, gas storages exceeding seasonal averages and mild weather may keep European and US gas benchmark prices low.

Russia’s limiting oil production is the primary driver on the supply side. As agreed with OPEC, Russia has ordered producers to restrict oil output in the second quarter to meet a 9 mbd production target by June.²⁶ However, Russia may aim to reduce output while maintaining oil exports. Moreover, given current prices, OPEC+ may reverse voluntary supply cutbacks, and the US could start to release part of its Strategic Petroleum Reserve, rebalancing the market in this way.²⁷

Concerns persist that Middle East tensions could cut supplies. The attack on Iran’s embassy in Damascus raises the possibility that Israel and Hamas’ Gaza war may escalate into a regional conflict.²⁸ Russia’s oil output may also be limited by geopolitics. Recent drone strikes might have halted 600,000 b/d of Russian refining.²⁹ Ukraine’s ability to target export facilities may threaten 60% of Russian crude shipments.³⁰ Demand is outpacing expectations again this year, driven by improvements in mobility in Europe and China.³¹ However, potential oil prices above $90 could trigger demand destruction.³²

Regarding gas prices, mild industrial demand recovery could be overshadowed by high storage levels both in Europe and the US and developments such as increased production in Denmark, the restart of the Freeport LNG project, and the commencement of the Plaquemines LNG export facility. ^33,34,35

Europe’s winter heating season ended with about 59% full storage sites, simplifying reserve replenishment ahead.³⁶ Storage levels remained above comfort due to a lack of demand attributable to milder-than-expected weather.³⁷ With summer just around the corner, Northwest Europe is again heading straight for full storage before winter withdrawal. Gas prices are expected to decrease; however, there are supply risks to consider. At year’s end, the transit agreement between Russia and Ukraine will expire, and Russia has attacked Ukraine’s gas storage facilities, which could lead to higher market volatility.^38,39

Critical Minerals, Battery Tech & Lithium (x) Since the market is in a surplus and expected to remain near-balanced, lithium prices have been under pressure and may remain steady. Still, the long-term outlook should remain intact thanks to government policies.

The Biden administration’s stricter regulations on vehicle tailpipe emissions mandated faster electric and plug-in hybrid vehicle sales.⁴⁰ According to the Environmental Protection Agency’s projections, the rule will reduce carbon dioxide emissions by 7.2 billion metric tonnes by 2055 as the nation’s transport industry is the largest emitter of greenhouse gases.⁴¹

As the Paris Agreement states, the United States must take decisive action to limit pollution and fulfil its commitment to halve emissions by the end of the decade.⁴² This translates into the ambitious goal of reaching 56% of all new US cars to be electric by 2032, up significantly from current levels as new vehicles accounted for fewer than 8% of the market in 2023.⁴³ The recent measure should further support lithium and critical minerals’ long-term investment thesis.