SM Commodities Index - February 2021

12 March 2021

The latest prices and key trends from the SM Commodities Index.

Natural gas

Natural gas prices spiked in the US in February. The monthly average of $5.35/MMBtu was the highest since February 2014. The circumstances driving the 97% month-on-month increase were similar to the 2014 spike: unusually cold weather caused both a jump in demand and constraints to supply. The extreme temperatures resulted in higher demand for both power and heating. At the same time, natural gas production and processing infrastructure was taken offline because of the impact of the cold weather on essential equipment, resulting in tighter supply. The price impact was short lived, however. Daily Henry Hub prices ended the month back below $3.00/MMBtu as the weather warmed up, demand returned to normal seasonal levels, and production resumed.

 Iron ore

Iron ore prices in February fell 5.5%, hitting a low of $149/Mt at the start of the month as Chinese New Year restocking came to an end and the positive effective of strong January shipments soothed the overheated market. Australian exports rose 1.5% y/y in January while Brazilian shipments rose 19.5% y/y, albeit from a very low base recorded in 2020. Correcting steel prices and record high coke prices also had an effect on iron ore spot prices where finished steel margins turned negative for many integrated producers, driving buyers into wait and see mode as iron ore prices fell. Looking ahead however, supply is the underlying issue at hand in the iron ore market. Given the supply deficits recorded in 2019 and 2020, a large increase in supply is required for iron ore that is not expected to materialise in the next two to three years, indicating high prices for longer. IHS Markit forecasts iron ore prices to remain above $100/Mt until the end of 2023.

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