A difficult, if not impossible, weaning. To cope with the energy shortage and the resulting power cuts, Beijing has forced its national coal champions to significantly increase their production rate. The objective is ambitious, since we're talking about an effort of nearly 100 million tons of coal, which must be achieved by the end of the year. This minimalist timeframe speaks volumes about China's difficulties in meeting its electricity demand in the coming months.

Complicating China's task, however, is the capricious weather, which is currently hitting some of its coal-producing provinces hard with torrential rains and flooding. As a result, several dozen mines are shut down or idling, pushing prices to new highs. The national benchmark set a new record at more than 1,500 yuan per ton.

Evolution of coal prices in China, in yuan (Zhengzhou thermal coal futures) - source: Bloomberg

Another snowball effect. In the (large) family of collateral victims of exploding energy prices, two weeks ago I discussed the surge in fertilizer prices, which are going from bad to worse due to a fall in supply. Today I bring you a new member, zinc, which this week set an annual high of USD 3,400, a level not seen since 2018. As with fertilizer, energy-intensive industries are feeling the brunt of soaring energy prices. Nyrstar, one of the world's largest zinc producers, has announced plans to cut production by up to 50% at its three European smelters from today.

In the longer term, the International Lead and Zinc Study Group estimated in its latest publication that the zinc market should remain in surplus next year. However, this surplus is expected to decline from 217,000 tonnes to 44,000 tonnes by 2022.

Zinc price trend, in USD - source: LME

Beware of sleeping dogs. Despite inflationary pressures, betting on gold in 2021 is not the best idea for the time being. Down nearly 7% since January 1, it is clear that the gold metal is not participating in the commodity rally. Despite inflation expectations pointing upwards, real rates remain at the bottom. A phenomenon that could eventually restore the reputation of the barbarian relic.

Trends in the price of gold in USD (left-hand scale) and in the US 10-year real rate (right-hand scale) - source: US Treasury, World Gold Council