China to remain key factor in energy, metal price direction: Woodmac
London (Platts)--12Dec2012/852 am EST/1352 GMT
China is likely to remain the major factor driving the direction of
commodity markets in 2013, analysts at UK-based Wood Mackenzie said in a new
report published Wednesday.
Energy and metal markets will also be affected by slower growth in other
emerging markets and economic problems in the developed world, it said in the
Horizons 2013 report.
"China remains the key swing driver for global commodity prices,"
Woodmac said, pointing to the fact that while Europe continues its "recession
recovery," demand for energy there has fallen.
"Navigating the next 12 months without incident will be challenging, and
there is little chance of events in Europe sparking a resurgence in global
energy demand," it said.
Article continues below...
|Request a free trial of Metals Daily|
Platts Metals Daily offers prices, news and analysis for the aluminum, copper and molybdenum value chains. It contains hundreds of metals prices across base, minor, light and precious metals assessed by editors globally. This detailed report will help you monitor global events and quickly spot opportunities or potential pitfalls as well as bring you aluminum and copper price and news coverage. Daily prices and news for molybdenum are also covered to deliver critical insights.
Woodmac said that China's economy is slowing, and 2013 will determine if
this is a successfully managed transition to a new phase of development.
The investment-driven boom of China's last decade is moving from the
prosperous south and east of the country, towards the relatively undeveloped
"As cities and infrastructure are built in Hubei, Hunan and beyond, the
economies of Beijing and Shanghai will rebalance towards the
consumption-driven model of the developed world, implying a structural change
in China's commodity demand," it said.
Chinese demand for energy will be key at a time when Europe's total
energy demand has fallen 5% since 2008. This structural shift downward is
permanent, Woodmac said.
"Final demand for energy [in Europe] will not return to pre-recession
levels before 2030," it said.
It said that Europe is struggling to adapt to a new era of austerity and
low demand, and falling trade is contributing to problems in emerging markets.
"China must prevent its economy from slowing too quickly, and the growth
engines of India and Brazil are stalling. The acute threat posed by a
Eurozone banking crisis has receded, but 2013 remains risky for Europe, and
its impact on the rest of the world."
It said that with global growth so fragile, "a deep European recession
would further damage emerging markets, derailing a nascent return to global
energy demand growth."
Woodmac said geopolitics are also still a source of increasing tension,
so that positive and negative price risks are finely balanced.
"Geopolitical risks are ever-present, and difficult to predict, but the
febrile situation in the Middle East clearly presents upside, but likely
shorter-term, risks to commodity prices."
"This period of price uncertainty is forcing divergent responses across
energy and metals," it said.
Woodmac said oil and gas producers, however, seem resilient to the price
uncertainty and are busy reloading their exploration and production budgets.
"The rapid transfer of improving technologies is reducing breakeven
costs and unlocking reserves globally. But with growing supply, accessing and
capturing demand is paramount."
Without an upside surprise to global demand, continued growth in
unconventional oil and gas supply will push down commodity prices across the
energy spectrum, it said.
The growth of unconventional oil and gas also promises to push North
America towards energy independence.
Woodmac suggested that pipeline politics are key for 2013, dictating
whether North American supply growth can be maintained, and how quickly the
region will adopt a new, potentially disruptive role at the heart of global
energy trade flows.
During 2013, decisions are expected on two oil pipeline projects, it
Keystone XL would transport Canadian oil sands to refineries on the US
Gulf Coast, while the Northern Gateway would transport Canadian crude to the
Pacific coast, to be shipped to markets in Asia.
"With falling domestic demand [in North America], increasing
unconventional and oil sands production will back out crude imports. This
will increase OPEC spare capacity, allowing for greater resilience against
upward price shocks."
--Stuart Elliott, email@example.com
--Edited by Jonathan Fox, firstname.lastname@example.org