2021 in review: another year of record-breaking commodity prices, volatility and disruption

Our editorial leads for agriculture, forest products and metals and mining look back at the past 12 months and ask how forces unleashed in 2021 will play out in 2022

Rollercoaster at Six Flags Amusement Park

2021 was a rollercoaster for commodity producers, traders and buyers

© smaehl/Getty Images/iStockphoto

Agriculture

by Timothy Worledge
Weather played its own inimitable part in 2021, as it does every year, but the scale and breadth of the challenges faced formed the backdrop to the COP26 meeting on climate change in the UK and framed major price rises globally.

From the drought conditions that shattered river logistics across Argentina, to the extreme heat that made parts of Canada and the US Pacific Northwest among the hottest places on earth, extreme weather was felt in every facet of production.

On the flip side, consistent rains across Australia meant the country left behind its multi-year drought status to record a huge wheat crop for the second consecutive year – but the constant rain raised fears over that crop’s final quality.

In the Black Sea, many of the region’s producers also enjoyed the benefit of more conducive weather to drive production, but the fears across the region were more geopolitically focused.

Mounting tensions between the world’s biggest wheat producer – Russia – and its neighbor Ukraine added further fuel to an already supportive mixture, while throughout the year China’s rapid recovery from Covid lockdowns strained every sinew of world trade logistics.

Also providing support from a downstream perspective was renewed vigor applied to the biofuel space, with the trade anticipating ever more ambitious biofuel mandates coming into play in the years ahead, as major blocs like the EU and the US strive to decarbonize personal transport.

Key in the battleground ahead is aviation, arguably the last bastion of unadulterated oil demand, where support for advanced and developing biofuels is likely to feed ever greater demand for a raft of vegetable oils, tallows, forestry and household waste as feedstocks to a historic attempt to wean the sector away from its mineral oil addiction.

Among that, the expectation remained that – even with the rise of electric vehicles – a bedrock of conventional oil demand will persist among the personal car fleets of the world, and positioning sustainable biofuels as a key answer to that fact are likely to drive efforts to further increase mandates and displace oil in the year ahead.

All of that teed up multi-year price highs across the biofuel, grains and oilseed space and looks set to persist into 2022 as the dynamics unleashed this year play out in the form of further uncertainty, inflation and volatility.

Forest products

by Matt Graves
2021 was certainly a record-breaking year for forest products markets. Nearly every grade, from pulp, to old corrugated containers, to containerboard and to lumber hit record highs this year for a variety of reasons.

As with many commodities, the rally in pulp was driven by China where speculative demand together with supply-side constraints helped propel the price of northern bleached softwood kraft (NBSK) to an all-time high of $1,000/tonne on a net delivered basis in May.

Other regions followed suit, with the US and Europe also hitting new records by the summer. And while China saw a sharp fall in prices once speculative demand settled lower, global shipping challenges delayed supply-side adjustments and allowed the US and Europe to retain higher price levels through December.

Shipping constraints and disruptions were key factors impacting global pulp and paper markets. The industry has been plagued with container shortages, soaring freight rates and delayed deliveries throughout 2021, which fed into higher commodity prices.

As for wood products, it was a real rollercoaster as massive economic stimulus allowed for pandemic-inspired home improvements, which triggered one of the most impressive rallies the market has ever seen.

The Random Lengths Framing Lumber Composite soared to a record $1,514/mbf in May, only to crash back down to below $400/mbf by mid-August. But it has worked steadily higher since, and at the time of writing had rebounded to $786/mbf with a sanguine consensus outlook for 2022.

What will 2022 hold? That remains to be seen. It will take a lot to beat the excitement of this past year.

Metals and mining

by Alex Harrison
The pandemonium of 2020’s metal markets might have led to the hope that, by comparison, trading in 2021 would be less volatile and uncertain.

But in November copper producers in China, the world’s largest consumer, and a powerful privately-owned trading firm there agreed to deliver cathode to exchange warehouses outside the country to squash a costly backwardation. This move exemplified just how challenging it has been to navigate global metal markets this year.

Hard enough certainly to demand that metals businesses adapt nimbly and act creatively to changing circumstances in tight markets.

After all, China-based trading firm Maike’s business was built on its 1 million tpy copper import business, and the China Smelter Purchasing Team customarily focuses on copper concentrate purchases to feed demand from industry in China. Safe to say that the delivery of cathode to the market of last resort has not hitherto been very high on its list of priorities.

These unusual moves did not happen in a vacuum. Copper prices have climbed to record highs on resurgent demand, years of prior under-investment in new capacity and surging costs.

Copper, which Fastmarkets forecasts will be in a significant deficit both this year and next, traded at almost $11,000 per tonne on the LME in May, inimical to the cost of growth and development in China. It has moved largely sideways ever since in spite of considerable macro and geopolitical risk.

Such large and volatile price movements were not confined to copper, which started 2021 trading below $8,000 per tonne.

Both cobalt hydroxide and cobalt metal prices have more than doubled this year, for example, on unexpectedly strong demand from the EV sector in a market where supply is still largely defined by the material’s status as a byproduct.

As metal prices moved through $30 per lb towards year-end, many suppliers have experienced a sense of security in a steadily rising market. There is a strong fundamental picture, in which demand is expected to outstrip supply by 7,000 tonnes next year, causing some consumers to seek to lock in material on longer-than-usual terms.

Still, those with longer memories will also recall cobalt’s history, in which strong rises have been followed by precipitous falls. The evolution of battery chemistries, partly driven by cobalt’s recent rise as well as its historical volatility, is for sure occupying the minds of cobalt traders as much as the growth in demand for jet engines, for which the blue metal is also a critical ingredient, once did.

This evolution in demand from application to application, and the development in contract terms that ensues, demonstrate that markets are living things, in which nuance and change need close monitoring.

But taking the analogy of life to markets too far can be difficult in trading terms.

During the extraordinary dislocations that one buyer had experienced in obtaining silicon (a critical material in producing aluminium alloys for auto parts, where prices more than trebled to $8,500 per tonne in the space of a little over a month as a result of shutdowns and container shortages) a counterpart had suggested that their contract was less a fixed and certain entity than a living thing.

The proposition that prices could grow and change within a fixed-price contract, as though it was subject to evolutionary biology, seems like a fitting emblem for another year of incredible change and uncertainty in the metal markets.

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