Energy is the new commodity bubble

Iron ore is down by one quarter. Oil is falling. Base metals are rolling. Australia’s terms of trade have topped and are falling as expected. Chart from Goldman on the commodity basket currencies:

However, things could be worse. In the last few weeks, COVID has delivered the world a new commodity bubble in energy, preventing a sharper pullback in the ToT. LNG, thermal coal and coking coal have all doubled in price even as other commodities have tumbled.

Coking coal prices are above $200 per tonne as supplies are being disrupted by Delta in China. And by its trade war on itself via Australia. These should be short-term problems and with steel output now shrinking year on year I do not expect high prices to last.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.