What to Watch in Commodities: BP, Glencore, Food, Lithium, LNG

(Bloomberg) — Commodities begin August near a decade-high, and there’ll be plenty this week to help investors judge what comes next. A sweep of major earnings, including numbers from Glencore Plc and BP Plc, as well as the United Nations’ latest take on global food costs will deliver key clues across the whole stable of raw materials just as the pandemic threat flares anew.

The earnings cycle also brings numbers from the world’s top lithium producer, Albemarle Corp., and a clutch of Japan’s storied commodities giants. Drilling down, market moves to watch include what’s next for copper as strike risks intensify at the world’s biggest mine, Europe’s gas crunch and wheat’s surge.

The earnings presentation from mining-to-trading behemoth Glencore on Thursday will draw additional attention as the first for new CEO Gary Nagle after Ivan Glasenberg moved on. Investors will want his take on markets through the second-half, with Covid-19’s delta variant and economic headwinds in China posing risks.

Money, Money, Money

Global commodity corporates have unveiled stellar profits and shoveled cash to shareholders so far this earnings season, and that theme will go on dominating proceedings this week. BP, which reports on Tuesday, offered a modest $500 million buyback program last quarter, and may now want to woo investors more powerfully, just like peer Royal Dutch Shell Plc did last week. More is expected on BP’s plans to return 60% of surplus cash to shareholders, possibly including a dividend upgrade, according to Bloomberg Intelligence.

For Glencore, it will be the first earnings outing for the new chief executive officer, Gary Nagle. He entered at the best of times, especially for the firm’s metals book (more on those markets follows below). The group’s trading unit will hit the top end of its guidance for this year, which was $3.2 billion, the firm said on Friday, ahead of this week’s grand reveal.

Metals Mania

Metals markets are displaying renewed vigor, with the catch-all LMEX Index pushing back toward the decade-high seen in May. This week carries the potential for further gains, with particular focus likely to fall on nickel, aluminum and copper. With stockpiles drawing, nickel — which boasts uses in old-economy stainless steel as well as new-economy batteries — is on the cusp of topping $20,000 a ton, and may go on to hit the highest since 2014.

Similarly, aluminum is in a sweet spot as solid demand has driven the cash-three month spread to the biggest backwardation since 2019. Traders are looking for the next move after prices exceeded $2,600 a ton. And copper may retake $10,000 a ton amid the risk of a strike at Escondida in Chile. At the vast pit, workers voted in favor of a strike, overwhelmingly rejecting owner BHP Group’s final wage offer. Labor rules give either side the option of mediation before a strike could begin.

Feed Us All

An additional 291 million people worldwide will go hungry this year, the U.S. government warned last week. That’s just the latest in a string of bleak takes on the food chain as the impact of pandemic and economic distress combine with weather-driven price spikes to elevate costs. This week’s authoritative food-price index report from United Nations will verify whether the rampant rally in food inflation is due for a pullback, or is hitting new highs.

The index — which tracks a broad basket of commodity staples including vegetable oils, meat and grains — retreated in June after a blistering year-long rally. Some agricultural markets have steadied as Northern Hemisphere harvests approach and the pace of China’s demand remains in focus. However, food costs are still well above 2020, and good weather in coming weeks will be critical for big crops to bear out and bring prices lower.

Fuel for Thought

An extraordinary, globe-spanning supply crunch in natural gas has fueled eye-watering price rallies from the Netherlands to China, and investors are primed to see whether the gains are extended. European gas prices climbed to a record on signs that flows via a key Russian pipeline have declined, taking traders by surprise. The amount of gas entering Germany at the Mallnow compressor station has suddenly dropped, signaling Russia is flowing less through the Yamal-Europe link via Belarus and Poland. Meanwhile, Asian liquefied natural gas prices are nearing a seasonal high as importers compete for supply amid the hotter summer weather.

The broad-based advances may encourage utilities in Europe and Asia to switch to dirtier-burning coal, even though that fuel is also near a record. Some generators, which had been delaying LNG spot procurement in the hope prices would fall, must now bite the bullet and buy the fuel at sky-high rates. In China, futures for thermal coal fell from near-record levels as the government pledged to boost supply.

All Charged Up

Albemarle, the world’s largest lithium miner, kicks off earnings on Wednesday for producers of the metal that’s key to powering rechargeable batteries. Investors are looking for insight on how these companies are positioning themselves amid signs that big mining companies are taking a greater interest in battery metals. Livent Corp.’s results are expected on Thursday, while SQM, the second-largest producer, reports later in the month

The procession of earnings will come as the industry faces much greater scrutiny over the green credentials of its mining processes. Albemarle and SQM are ramping up output in Chile’s Atacama in response to a projected tripling of global demand as copper mines, communities and tourism also compete for water. In the meantime, surging lithium prices are giving producers a boost, and traders are looking for more clues on the durability of the rally.

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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