In July, commodity prices finished mostly higher except for iron ore and oil.

Thermal coal and LNG were amongst the best performers, as this graph out of the Commonwealth Bank’s research desk shows:

 

Commodity prices for July. Source : Commonwealth Bank

 

Brent crude up for four straight months

Brent crude rose by nearly 2% in July, its fourth straight monthly increase.

Guidance released by majors Exxon Mobil and Chevron last week have indicated the market would remain tight, analysts said.

On the ASX, a merger proposal for Oil Search (ASX:OSH) worth $22bn could rank as the largest deal on the Australian bourse this year.

Santos (ASX:STO) has upgraded its offer for OSH, and is now offering 0.6275 new Santos shares for every Oil Search share, which values each OSH share at $4.52.

The offer looks to have found favour from the OSH board.

 

Copper falls for two straight months from record highs

Copper prices softened by 7% in July after an 8% dip in June, following record prices a month earlier.

However, Citi has upgraded its near-term outlook in light of the recent sell-off, and remains bullish on prices over the next 3-6 months.

Near-term risk in supply is rising after recent labour strikes in Chile. BHP’s Escondinda copper mine could be at risk if government-mediated talks fail to appease Chilean workers.

In the smaller capped space, Sandfire Resources (ASX:SFR) has secured the mining licence for Motheo Copper Mine in Botswana, and is now ready for a full scale construction of the US$279 million ($364 million) project.

Premilinary results from Golden Mile’s (ASX:G88) helicopter electromagnetic (HEM) survey on the company’s Yarrambee project in WA look promising – with 48 high priority base metal targets identified.
 

Thermal coal rose in July

Thermal coal’s rise in July was mainly linked to a warmer than usual summer in North Asia.

Glencore, the world’s largest thermal coal producer for the seaborne export market, also contributed to the rise in coal price as its output declined by 19% in the first half of FY21 – part of its plan to reduce coal output in Australia.

A parabolic rise in spot market prices for alternative generation fuel gas has also pushed some power utilities into the thermal coal market.

Power utilities in Japan, Korea and Taiwan turned to thermal coal as a cheaper alternative to liquefied natural gas (LNG) which has rocketed in price.

China’s coal supply meanwhile, is experiencing the most acute shortage since 2011, which is being exacerbated by its unofficial ban on Australian imports.

There are a number of ASX coal companies that provide exposure to the thermal coal market including, BHP (ASX:BHP) with its Mount Arthur mine in NSW, Terracom (ASX:TER) with its Queensland Blair Athol mine, and Yancoal Australia (ASX:YAL) with its portfolio of NSW Hunter Valley mines.

Whitehaven Coal (ASX:WHC), meanwhile, released its quarterly report for June, pledging to investors that 10-year-highs in thermal coal prices were about to bring stronger cash flows.

 

LNG lifted on warmer temperatures

LNG spot prices delivered to North Asia lifted in July on concerns that warmer-than-usual temperatures in the region could spike demand.

Gas shortages in Europe also meant that competition for LNG cargoes was heating up last month.

According to the CBA report, European gas shortage level is now tracking around 56% of capacity, compared to its five-year average of 71%.

Disruptions in export terminals in Peru and PNG have also exacerbated tightness in supply.

On the ASX, Strike Energy (ASX:STX) is waiting in the wings, and has just completed production testing at the West Erregulla 4 well – part of its West Erregulla appraisal campaign (onshore Perth basin) in the Kingia Sandstone.

Talon Energy (ASX:TPD) received an approval from the Mongolian government in July, which will allow it to explore one of the world’s most prospective coal seam gas basins.

The area covers 8,400km2, and sits less than 20km from the Chinese-Mongolian border and close to the Northern China gas transmission and distribution network.

 

Iron ore falls on China’s clampdown

Iron ore prices fell sharply towards the end of July on demand concerns in China.

CBA reports that Chinese policymakers are looking to constrain steel output growth to reduce emissions.

The Chinese Government may be quietly satisfied after sentiment around steel production cuts finally knocked down the iron ore price, hammering it 7% to a tick over US$180/t on Friday.

On the ASX, Fortescue (ASX:FMG) and Mineral Resources (ASX:MIN), were the worst hit large caps by the dip.

More sensitive junior iron ore miners and explorers have largely fluctuated from 5-20% drops.