Bubbles: Natural Gas, LNG, Coal and Lithium

Anecdotally, the most euphoric noise that I hear globally surrounds three markets, being LNG, Thermal Coal and Lithium/Spodumene.

Especially amongst gas prices, I can’t hear anyone making a case for a moderation of prices.

The herd is all huddled together on the same life rafts.

Sure, prices can go higher but I dare you to initiate a new ‘long’ position.

My commentary is to heed warning.

The technicals and the spikes in price action are pointing to extremes which I think provide a terrible risk/reward skew for any recent or new entrants to these markets.

Producers and Sellers of such commodities would be well advised to lock in prices.

Buyers should elect taking a calculated risk of probability and not commit to fixing in those higher prices.

Owners of listed securities exposed to these sectors are doing themselves an injustice if they are not acknowledging the speculative fervour, let alone pondering taking the ‘fat part of the trade’.

The charts below show prices being Overbought, trading to 3 standard deviations and stratospheric miles above their 200 week moving averages.

Although one day doesn’t make a season, the Dutch TTF Natural Gas and Japan/Korean LNG Market prices are down 25% and 15% respectively, thus far, thus week.

August 31, 2022

by Rob Zdravevski

rob@karriasset.com.au

Gravity and the JKM LNG price

The Japan Korea Marker (“JKM”) fell 25% last week of which 22% occurred on Friday alone.

It closed at $25.25.

I expect it to (and it’s trying to) retrace or mean revert that parabolic move seen through 2021.

$22.50 is now an important support level which represents a 62% retracement from the $6 trough seen in March 2021.

Ultimately, $15.20 would be a better place to rest once it has ‘blown-off’ that sharp rally.

In the weekly chart below, the rolling mean illustrated is a 200 week moving average.

That average currently reads $9.55, however I expect it to roll (sharply) higher in the coming months, in essence converging
to a point that may be close to the $15 level mentioned above.

So, what does this mean?

Sellers should have already been locking in their forward price over the past few months, while I also expect lower equity prices in LNG producers as JKM pulls back a little more.

So, patience is a virtue for buyers.
Wait for your price, Wait for your pitch.

n.b. The JKM price reflects the spot market value of cargoes delivered ex-ship into Japan, South Korea, China and Taiwan.

January 17, 2022
by Rob Zdravevski
rob@karriasset.com.au

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