Syz Bank 2022 outlook for commodities

Commodities have seen a spectacular performance throughout 2021, facing continued pressure on physical commodity markets. With the new year in full swing, the burning question on everyone's mind is, will this momentum carry into 2022? Charles Monchau, Chief Investment Officer at Syz Bank, joins CNBC Africa to share his insights on the commodities outlook for the year ahead. Monchau acknowledges the exceptional year that commodities had in 2021, noting a remarkable increase of almost 30%, making it one of the best years since 2009. The imbalance between supply and demand, coupled with institutional interest, fueled this surge. Looking ahead to 2022, Monchau presents a nuanced view, distinguishing between commodities in a secular bull market and those in a cyclical bull market. He explains that supply is expected to normalize in 2022, amidst macro headwinds such as monetary policy adjustments. Differentiating between cyclical commodities like energy and secular commodities like metals dependent on themes like the energy transition, Monchau outlines where opportunities may lie for investors in 2022. Highlighting the energy transition agenda, Monchau identifies investments in wind turbines, solar panels, and electric vehicles as key drivers for metals such as lithium, cobalt, and copper. Additionally, he sees a strong bullish trend in uranium due to the need for alternatives to fossil fuels, particularly nuclear power. Monchau emphasizes that the demand-supply gap in these sectors could lead to upward price movements. However, Monchau also highlights potential risks to the commodities market in 2022. While factors like delayed energy transitions in certain countries and geopolitical tensions like the Russia-Ukraine conflict may pose threats, he points out that these could also create opportunities. For instance, tensions could impact natural gas prices in Europe, with ripple effects on oil prices. Turning to gold, a traditional safe-haven asset, Monchau examines the factors that affected its performance in 2021. Despite a strong mix favoring gold, including inflation and negative real yields, the metal had a lackluster year. Monchau attributes this to a strong dollar, flow of funds into Bitcoin, and weak demand from emerging markets. Projecting into 2022, he foresees a weaker dollar, potential shifts in Bitcoin flows, and improved demand from emerging markets, which could drive gold prices higher. In the realm of cryptocurrencies, Monchau weighs in on the Bitcoin versus gold debate. Bitcoin, being seen as the digital gold with scarce value, attracted significant flows in 2021. He anticipates continued interest in Bitcoin as a store of value, given its scarcity, but notes its higher volatility compared to gold. Monchau suggests that Bitcoin's volatility may present an opportunity for gold to regain investors who seek a more stable alternative. Lastly, the conversation moves to oil, which witnessed a substantial price surge. Monchau speculates that while the supply-demand imbalance seen in 2021 may ease, with production outpacing consumption in 2022, the years of underinvestment in oil production may provide a price floor. He forecasts oil prices to stabilize around $70, barring significant demand shocks. As 2022 unfolds, investors navigate a complex landscape of commodities, balancing bullish trends with risks and uncertainties. Monchau's insights shed light on the intricate dynamics shaping the commodities market and offer a glimpse into what the year may hold for these essential assets.