Another volatile week for commodities as higher prices force intervention

It was another volatile week for commodities with little clarity on the energy crisis in China and Europe, the Federal Reserve’s monetary policy stance as well as the health of China’s property market that has been a source of growing unease.

Inflationary pressures have been rising globally and the recent surge in energy and commodity prices has aggravated the market situation.

The surge in commodity prices and the fear of inflation getting out of control forced authorities to act.

Coal price in China surged to record high level amid higher power demand and lower gas and coal supply. China’s coal prices slumped sharply from recent high level amid reports that economic planner is studying ways to intervene in the coal market as the government tries to rein in rising prices and curtail shortfalls.

Copper prices jumped to May highs earlier this week on signs of supply squeeze, forcing LME to act. Premium of spot price over three-month forward jumped to a record of about $1,100 a tonne, while on-warrant stocks fell to multi-year low.

The LME said it was taking action to impose order and that it was temporarily overhauling the rules governing the trading in the metal.

Copper slipped back below $10,000 level and cash-3-month forward narrowed to about $300 a tonne.

Commodities, at large, weakened as the Chinese regulator the CSRC pledged to strengthen supervision of commodity futures markets and guide exchanges to take measures to ensure supply as well as price stability.

The agri market, too, wasn’t left untouched. Palm oil price corrected sharply amid worries that top buyers China and India may strengthen regulation on speculative activities.

Commodities like industrial metals have rallied sharply amid concerns that rising energy costs may force producers to curtail activity hampering supply.

Crude oil jumped to a multiyear high on expectations that higher gas and coal prices may lead to fuel switching, resulting in higher demand. Crude also succumbed to profit-taking as energy prices in Asia and Europe subsided.

Concerns about intervention have brought a halt to the recent rise in commodities but unless there is a significant improvement in the energy situation in China and Europe, volatility is likely to continue.

If no fresh measures are taken, the market focus may shift to other factors. Virus concerns have resurfaced as some countries like Russia imposed tighter restrictions to control rising infections.

Concerns about China are high as data points to a slowing economy. The Fed’s monetary tightening debate may also continue as we move closer to the American central bank’s next meeting in early November.