U.S. Tops the Global LNG Market Amid a Renewable Energy Boom


The U.S. is adding new renewable energy capacity at a record clip, but that doesn’t mean it’s ready to quit fossil fuels just yet. The country just became the world’s biggest exporter of liquefied natural gas (LNG) for the first time ever, with last year’s shipments hitting an unprecedented 91.2 million metric tons, exceeding top suppliers Australia and Qatar.

The surge in LNG exports, primarily driven by Freeport LNG’s return to full service and robust global demand, particularly from Europe, signifies America’s pivotal role in the global energy market.

The U.S. also remains the world’s largest oil producer. In October, the energy powerhouse generated a staggering 13.25 million barrels per day, marking only the fourth month on record that the country met or surpassed 13 million barrels per day on average.

Updated Period Table of Commodities Returns

It’s against this backdrop that we share with you our always-popular, interactive Periodic Table of Commodities Returns, updated to reflect 2023 data.

Commodities as a whole had a challenging year, with the group finishing down 12.55% due to a number of factors, including rising rates, recession fears and China’s disappointing pandemic reopening.

Excess supply contributed to the drawdown. Despite strong global demand, the price of natural gas plunged nearly 44%, its worst year in at least a decade, largely as a result of record-high production.

According to the Energy Information Administration (EIA), the U.S. produced an astonishing 104.9 billion cubic feet per (Bcf/d), a new monthly high.

After topping the list of commodities in the previous two years, lithium prices cratered for very much the same reason in 2023. This, combined with news that Americans’ appetite for electric vehicles (EVs) may be waning, drove the battery metal down to prices last seen in summer 2021. 

I believe these lower prices set up an attractive buying opportunity. Commodities are the building blocks of everything we use and enjoy on a daily basis, and as the global population expands, so too does demand for these materials. The Minerals Education Coalition (MEC) estimates that every American born in 2023 will require over 3 million pounds of metals, minerals and fuels over the course of their lifetime. Last year alone, over 40,000 pounds of raw materials, from cement to sand to aluminum, were needed for every person in the U.S.

Gold Took the Crown

Gold was the number one commodity and only one of two that finished the year in the black, copper being the other commodity (just barely). The precious metal rose 13.10% to close the year above $2,000 per ounce for the very first time, and with an average 2023 price of $1,943, it managed to notch its eighth straight annual gain. Gold has now advanced in 20 of the past 24 years, or 83% of the time.

Looking ahead to the end of 2024, I believe we’ll see a fresh boost in gold’s investment case once the Federal Reserve begins trimming rates. Support should also come from central banks, which bought a record amount of gold in the first nine months of the year. Financial institutions purchased a net 800 metric tons from January to September 2023, a 14% increase from the same period in 2022, according to the World Gold Council (WGC).

China easily led all other countries, accumulating 181 tons of gold in the first nine months, as it seeks to prop up its currency and diversify away from the U.S. dollar. The WGC estimates that gold now represents just 4.3% of the country’s total foreign reserves, compared to nearly 70% for the U.S. If China were to get to America’s level, it would need to buy an additional 33,810 metric tons, which is 10 times more gold than the entire world produced in 2022.

Before moving on, I’d like to point out that U.S. national debt just crossed above $34 trillion for the first time, the equivalent of $101,000 per U.S. citizen, or $264,000 per taxpayer. I believe this is a good place to look if you want to know where gold may be headed in the coming months and years. Since the start of this century, national debt and gold have shared a strong positive correlation coefficient of 0.9. In simple terms, this means that both have tended to make similar moves day-to-day. If you think debt is headed higher, it may make sense to consider an investment in physical gold and gold mining stocks.  

Solar Market’s Unprecedented Growth in 2023

On the energy side, the renewable energy market saw significant strides in 2023, with over 440 gigawatts of added capacity. Notably, both the U.S. and Europe set new benchmarks for solar installations, while China’s contributions dwarfed everyone else’s, adding between 180 and 230 gigawatts (GW).

Wood Mackenzie, however, forecasts a slowdown in the growth rate of annual solar installations this year. Despite this, the global solar market remains substantially larger than it was a few years ago, following a typical S-curve pattern of rapid growth followed by gradual maturation. This build-out is expected to benefit silver in particular, a key mineral found in photovoltaic (PV) panels.

A Word on the Election

On a final note, 2024 is an election year, and it appears more and more likely that we’ll have a second rematch between incumbent president Joe Biden and Donald Trump. I expect to see heightened vitriol and animus this year compared to past cycles, given that both men are deeply unpopular and facing either criminal charges or an impeachment inquiry. 

As unpleasant as this election is shaping up to be, I don’t predict substantial effects on the market. Believe it or not, the S&P 500 has never declined in a presidential re-election year, and historical data doesn’t support the notion that election outcomes profoundly influence U.S. stock market returns over the long term. Other factors are more crucial in driving stock market trends.

Therefore, I advise that investors concentrate on underlying economic conditions. In an election year, the most effective investment strategy, in my view, is to maintain a diversified portfolio instead of pursuing short-term, tactical bets.

Visit the updated Periodic Table of Commodities Returns, updated for 2023, by clicking here!

Index Summary

The major market indices finished down this week. The Dow Jones Industrial Average lost 0.59%. The S&P 500 Stock Index fell 1.64%, while the Nasdaq Composite fell 3.25%. The Russell 2000 small capitalization index lost 3.65% this week.

The Hang Seng Composite lost 2.81% this week; while Taiwan was down 2.30% and the KOSPI fell 3.44%.

The 10-year Treasury bond yield rose 16 basis points to 4.043%.

Airlines and Shipping

Strengths

The best performing airline stock for the week was Turkish Air, up 4.6%. According to Bank of America, in the latest week, system net sales rose 16.2% year-over-year, compared to +6.5% for the week before. The holiday shift allowed volumes to remain strong. Domestic and international sales each accelerated versus recent weeks, with domestic sales continuing to see strength over international, at +19.1% and +14.1%, respectively. International volumes outperformed at +32.3% compared to domestic at +22.9%

The Shanghai Containerized Freight Index surged 40% week-over-week during the last week, bringing the monthly gains to 75%, led by the Asia-Europe and Asia-Mediterranean route (+217% and 177% each during the past month).

Alaska Airlines will be raising prices for checked bags to $35 for the first checked bag (from $30 prior) and $45 for the second checked bag (from $40 prior). Baggage fees are included in Alaska’s ancillary revenue which contributes 5% of total revenue, which means a 15% increase in fees (on average) is not insignificant.

Weaknesses

The worst performing airline stock for the week was Azul, down 12.4%. According to Bank of America, U.S. airlines’ trailing seven-day average daily website visits were 28% lower for the week compared to the prior week. Visits to most websites decelerated, except for Hawaiian which accelerated.

Another Maersk ship was hit by a missile in the Red Sea. The incident comes a day after the Danish government decided to send a frigate to the area as part of a U.S.-led coalition to secure passage after repeated attacks on ships from the Houthi movement, which is fighting Israel’s war against Hamas in Gaza. It also comes just after Maersk started sending its container ships through the waters again, which lead up to the crucial trade artery of the Suez Canal. Following the incident, Maersk will stop all voyages through the strait for the time being.

Flight attendants at Air Transat have overwhelmingly rejected a new tentative contract, with more than 98% of votes against it. This rejection poses a challenge for the airline, especially as it aims to benefit from the current surge in air travel demand. The tentative agreement, reached last month with the Canadian Union of Public Employees (CUPE), represents around 2,000 Transat workers, and proposed pay increases of about 18% over five years.

Opportunities

UBS forecasts air passenger yields of Pan-Asian airlines, under UBS coverage, to remain 15-22% above the 2019 level in 2024. On the demand side, appetite for leisure travel remains strong, based on Skyscanner’s survey of 18,000 travelers in 15 countries that indicates more travelers would increase travel budgets and frequency than those who would reduce them in 2024. For business demand, most travel managers expect to increase business travel budgets in 2024 versus 2023, based on UBS Evidence Lab’s Global Travel Manager Business Survey.

According to JPMorgan, the Suez Canal represents a strategic trade route, constituting 30% of global container volumes, 12% of global tanker ships and 6% of global bulk trade. Putting this into context, there were over 24,000 transits through the Suez Canal in 2023, with containerships (43%) accounting for the largest share of tonnage transiting, followed by oil tankers (23%) and bulk carriers (19%). For container shipping, Asia-Europe (48%) and Asia-Mediterranean (23%) had the highest share of containership capacity on the Suez route. 

According to Bank of America, airline stocks returned 9% in December compared to the S&P 500’s 4% in the second consecutive month of outperformance. Strong holiday travel demand continued to drive investor optimism through December after weak returns through much of the fall as shoulder-season oversupply pressured pricing.

Threats

According to UBS, regarding supply, passenger capacity growth could be tempered by the slow delivery rate of new aircraft and disruption related to Pratt & Whitney’s GTF engines, which could pressure fleet availability. In 2023, the number of aircraft in APAC grew only 2% versus the 2011-2019 average of 7%, while around 680 aircraft in Asia (8% of passenger aircraft) are powered by GTF engines and may be grounded for inspection.

According to Bank of America, Red Sea supply chain disruptions have worsened in late December. Containers are seeing the highest disruptions, and the bank sees risks skewed to the upside to container rates in January 2024. The group’s base case, however, is that supply chains and container rates normalize in February-March 2024, helped by weaker exports during the post-Chinese New Year low season and the possibility that peak disruption has already passed with some liners returning to the Red Sea in response to Operation Prosperity Guardian.

According to Goldman, regarding the impact of the closure of runway “C” at the Haneda Airport, the company said that this will result in a reduction of 60-70 JAL flights per day. By multiplying the per-day reduction in flights by the key assumptions (passenger yield of ¥15,700 (as of 1H3/24), per-aircraft seat capacity of 250, and load factor of 75% (as of 1H3/24)), Goldman estimates the impact on revenue per day at around ¥0.18-0.20 bn, equating to slightly over 10% of revenue per day (around ¥1.5 bn) in JAL’s domestic passenger business.

Luxury Goods and International Markets

Strengths

The Eurozone Manufacturing purchasing managers index (PMI) rose slightly to a seven-month high of 44.4 in December, according to a report released on Tuesday. The figure remained below the 50.0 threshold that separates growth from contraction for the eighteenth month in a row, although it has been slowly improving since July of last year.

The combined net worth of the 500 richest people surged by $1.5 trillion in 2023, fully rebounding from the $1.4 trillion lost the prior year, according to the Bloomberg Billionaires Index. Elon Musk regained the title of the richest person in the world from French luxury owner Bernard Arnault. Musk’s net worth stands at $232 billion, more than $50 billion above Arnault’s net worth of $179 billion.

MGM China Holdings, a Macau hotel/casino operator, was the best performing S&P Global Luxury stock, gaining 5.4% in the past five days. Macau’s hotel and casino operators gained in the first week of 2024 trading after China reported that cross-border travel returned to the pandemic level during the New Year holiday. There were 5.18 million border crossings across mainland China from December 30 to January 1, nearly a five-fold increase from a year ago and around the same level seen in 2019.

Weaknesses

The Paris Stock Exchange, where many luxury companies are listed, experienced a weaker start to 2024. At the end of 2023, equities trading on the exchange resigned into overbought territory (per the below RSI indicator), and a correction was expected. During the first week of trading in the new year, France underperformed in Europe, equities lost 2.6%. The shares of Hermes declined 6% and LVMH 7%.

Both China and the United States experienced a decline in their manufacturing activities. In December, China’s Manufacturing PMI fell from 49.4 to 49.0. However, the Caixin Manufacturing PMI, which focuses on production among smaller, privately owned firms, saw a slight increase from 50.7 to 50.8 during the same period. In the United States, the S&P Global U.S. Manufacturing PMI decreased from 48.2 in the previous month to 47.9 in December.

Faraday Future Intelligence, an electric vehicle (EV) maker, was the worst performing S&P Global Luxury stock, losing 31.1% in the past five days. This troubled manufacturer of EVs may be delisted from the NASDAQ because of its low price after losing 99% of its value last year. The company was given a deadline of June 24, 2024, to meet the minimum $1 share price. It closed at 16 cents on Friday.

Opportunities

Hong Kong’s luxury retail market is likely to regain some lost ground in 2024 as high-end brands slowly find their way back to the city after an exodus sparked by 2019’s street…



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