The return of El Niño likely to cause issues for commodity markets – ANZ

The emergence of an El Niño weather event threatens to disrupt the already uncertain outlook for commodity markets, economists at ANZ Bank report.

El Niño is expected to increase demand for electricity

An El Niño typically brings drought to the western Pacific, rains to the equatorial coast of South America, and storms and hurricanes to the central Pacific. As such, we are likely to see warmer and drier weather in Europe and Asia. This will put further pressure on energy markets in the short term. Coal and Gas consumption is expected to rise.

We expect an increased level of disruptions to supply in the metals markets. Copper from South America is the most exposed. Aluminium supply in China is also at increased risk of disruption. On the flip side, demand for Gold could be impacted as lower revenue from reduced crops keeps India’s farmers hands in their pockets.

We could also see increase levels of carbon emissions brought about by increased fires and higher power consumption. Any potential pick-up in demand for carbon credits from industrial users and consumers could be offset by stronger renewable energy generation.