A closely watched metals ratio is signaling investors are getting increasingly skittish about the prospects of recession, while in the US, power generators are burning record levels of natural gas on a seasonally adjusted basis. Here are five notable charts to consider in commodity markets as the week gets underway.
Copper & Gold
The so-called Gundlach ratio, named for famed money manager Jeffrey Gundlach who closely watches the relationship between copper and gold, is trading near the lowest levels since the start of 2021, signaling that a recession might be in store. Changes in the measure are a useful barometer of investor sentiment and the comparison has historically been a proxy for nominal interest rates and future economic growth, with a falling ratio consistent with rates flat to down. Copper futures on the Comex have slid about 3% this year, while gold is up over 9% on demand for haven assets.
Carbon Capture
The European energy industry will gather at the E-world energy & water conference in Essen, Germany, this week. Topics of discussion will include carbon capture, hydrogen, achieving a path to net zero and how to face the energy and climate crisis. Governments around the world are investing billions in carbon capture, utilization and storage (CCUS) technology, a process where carbon dioxide emitted from smokestacks is sequestered and buried deep underground. Rules proposed earlier this month by US President Joe Biden will require some power plants to roll out carbon capture systems or shut down. That follows lucrative new tax credits allocated in Biden’s landmark climate bill, as well as legislation providing billions more to boost the technology. BloombergNEF forecasts the US will have nearly half of the world’s CCUS installed capacity by 2030. In Europe, the UK and the Netherlands will be the growth leaders.
Natural Gas
The US is consuming record amounts of natural gas to power homes and businesses. Electricity generators have burned a daily average of 29.7 billion cubic feet of gas since the beginning of March, up 14% from the same period a year earlier. The trend comes amid a switch from coal, with gas emerging this year as a cheaper alternative after prices plunged more than 50% amid an inventory glut. But signs of tightening supplies have become more apparent after a dramatic drop in the number of rigs searching for gas and a smaller-than-expected increase in domestic stockpiles, leading prices for the fuel to surge 14% last week. Futures gave back some of those gains in Monday trading.
Shipping
A drought is reducing water levels on the Panama Canal to what could be the lowest in seven years. Levels on Gatun Lake, the largest of two lakes that feed the canal, are forecast to shrink into July to the lowest since 2016, which would raise surcharges for pumping fresh water into the waterway from elsewhere. Besides footing steeper fees, large container ships and tankers may not be able to travel through the canal if they are carrying too much cargo due to draft restrictions.
Uranium
Momentum is building on Capitol Hill to ban imports of Russian uranium. Last week, bills in a US House subcommittee and a Senate committee passed, leaving open the possibility that the measures are included as attachments to must-pass defense legislation. In 2021, US operators and owners of civilian nuclear power reactors imported almost 14% of uranium from Russia, while Kazakhstan supplied the bulk of supplies, according to Energy Information Administration data. Only 5% comes from domestic sources.
--With assistance from Gerson Freitas Jr., Yvonne Yue Li, Ann Koh, Ruth Liao, Alex Tanzi and Ari Natter.
(Updates prices in second and fourth paragraphs with Monday trading.)
