Basic Materials

Commodity spotlight: Coal cracks $400, falling US dollar stabilises gold, uneasy rally for nickel

Fri 20 May 22, 3:35pm (AEST)
Iron Ore 2 Mining Port
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Key Points

  • Coal prices trend higher as the EU plans to burn more coal to move away from Russian oil and gas
  • Gold rebounds as the US dollars falls and Treasury yields pullback
  • Nickel rallies off supply-side issues, demand outlook remains uncertain

Coal passes US$400 with ease

Newcastle coal futures pushed through US$400 a tonne this week as the supply deficit narrative continues to gather momentum.

NCF1! 2022-05-20 13-59-43
Newcastle Coal Futures (Source: TradingView)

This week in coal headlines:

  • India relaxes environmental compliance rules for coal mines to ramp up production amid soaring temperatures prompting higher energy demand

    • Coal makes up approximately two-thirds of India's energy needs

  • Shanghai begins lifting lockdowns, still in its early days but an encouraging sign for industrial activity

  • EU plans to burn more coal to move away from Russian gas and oil

    • The European Commission said the EU would use 5% more than previously expected over the next 5-10 years

Gold getting its groove back

Gold seems to have found a potential bottom at US$1,810 after an -8.5% tumble from US$1,980 a month ago.

The bounce off US$1,810 this week was broadly in-line with the US dollar topping out and the US 10-year Treasury yield falling below 3.0%.

Gold does not bear any yield, and therefore competes with interest-bearing assets such as bonds for demand. The pullback in US treasury yields has helped bring buying back into the yellow metal.

GOLD 2022-05-20 14-27-02
Gold price (Source: TradingView)

The market seems to have shifted its interest from the fear of higher interest rates to the threat of slower economic growth and a potential recession. The shift has driven yields lower and helped stabilise weak gold prices.

Nickel rallies, uncertainty lingers

Shanghai nickel futures soared more than 6% to 215,400 yuan a tonne (~US$32,100) on Thursday.

According to the Shanghai Metals Market:

  • Downstream demand for stainless steel was weak due to the impact of the pandemic and lockdowns, market transaction remain thin

    • Approximately 70% of global nickel consumption is used to create stainless steel

  • Steel mills have been quite cautious when purchasing raw materials

  • Nickel supply issues in the Philippines was the main catalyst behind the price spike on Thursday

Overall, it appears that nickel prices have managed to stay elevated but the demand side remains subdued due to persistent pandemic related issues in China.

NICKELH2022 2022-05-20 14-46-24
Nickel futures (Source: TradingView)

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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