Global markets continue to be very complicated.
Regarding the energy sector we are seeing some strong moves in Oil and Gas prices reaching levels not seen since 2018. There is on one side production cuts from Opec+ and on the other side a strong recovery post covid from the industry. Moreover China and its new Xi Jinping decisions are sending coal prices to unprecedented levels. Chinese coal futures rose to record levels as floods shut dozens of mines, climbed 11.6% to close at an all-time high of CNY1,408/ton ($218/ton) on the Zhengzhou Commodity Exchange on October 11. The outlook of China’s manufacturing production is bleak. Some provinces have ordered energy-intensive companies to slash or even suspend production after their power consumption exceeded planned levels in the first half of the year. The power curbs have already hit the output of aluminium, steel and chemicals sector. Moreover China’s refinery throughput dropped due to limited fuel export quotas for 2021.
This has a direct effect on purchasing appetite for gas and oil in a balanced market which is supporting the recent energy prices run.
Last but not least we are seeing in Europe dramatic gas price increase since beginning of the year of over 290% and electricity prices increase of over 230%. Moreover the market of CO2 is flying to record levels in Europe over the threshold of 60 €/t. Prices more than doubled since January.
Regarding logistics, worldwide situation continues to be very difficult with surging prices in all sectors.
Containers from overseas are extremely tight and prices have reached unprecedented levels closing the door for low added value product for import/ export. This is making Europe more and more isolated on the import side. Situation of very high freight costs and tightness of containers will continue most probably at least till end of Q2 2022.
Regarding road transportation we are missing truck drivers in Europe and with the recovery of the economy, road transportation is more and more difficult with prices increasing drastically in certain regions. It may become a major issue in Europe in the years to come. European road transport firms are racing towards a driver shortage crisis of 150,000 unfilled jobs, according to new research from Transport Intelligence.
Regarding the financial sector we can clearly see that ECB will maintain its quantitative easing in order to support recovery of the economy until growth will be more robust. On the other side Federal reserve is already discussing about reducing the quantitative easing in US. First move could happen in November. Moreover Mr. Powell alleged that USA will rise interest rates in 2022. This could create some problems in growth in third world economies as well as economies which have national debt expressed in US $. For now the first effect we can see is that US $ is strengthening against all major currencies in the world. Us $ against € have reached a level below 1.16.
With total liabilities of $300 billion, Evergrande is on a brink of a potential default on its debts. Evergrande is only the tip of the iceberg with other 6 major construction companies which are not able to honor their debt obligations. Beijing has stepped up its efforts to cool down the red-hot property market by limiting financing for property developers and mortgage loans. Analysts said the policy would result in slower developments of many projects. Property investment grew 0.3% last month, the weakest pace in 18 months. Meanwhile, new home prices rose at the slowest pace in eight months.
Bank of America trimmed its China’s real GDP growth forecast from 8.3% to 8.0% for 2021, from 6.2% to 5.3% for 2022, and from 6.0% to 5.8% for 2023. Fitch also cut its forecast from 8.4% to 8.1% for 2021, citing the slowdown in the property sector on domestic demand.
Considering the energy crisis, Chinese situation and logistic problems we are seeing all prices of commodities and raw material rising on the market. We can assume now that until Q1 2022 it will be very difficult to see a change in raw material quotations.
Energy will indeed support actual prices and logistic issues will continue to isolate Europe more than ever.
On the other side isolation of Europe is helping the industry to recover faster as more product is actually produced in Europe. However capacities are not enough to support demand, creating price inflation to final users. This could be a threat on a medium term to the recovery of our economy.