OVERVIEW | Trade tensions and financial tightening weigh on global commodity prices Global commodity prices tumbled 7.3% over the previous month in July, following June’s 0.1% drop. This slide in prices reflects fears of a full-blown trade war among key players that could lead to a sharp global economic downturn. Looking ahead, tighter global monetary policy conditions could add further downward pressure due to higher borrowing costs and heightened volatility in financial and foreign-exchange markets, especially in developing nations. Prices for base metals, which are mostly used for industrial purposes, were down sharply in July on fears of a potential global slowdown. Precious metals followed suit as higher interest rates in the United States reduce the appetite for safe-haven assets such as gold and, to a lesser extent, other precious metals. Moreover, agricultural prices recorded another drop this month as China shifts away from importing U.S. agricultural products due to the ongoing trade spat between the two countries. Lower agricultural prices also reflected ample supply for key commodities. On the flip side, energy prices increased on the back of hot weather in some regions, including Europe and China, as well as strong growth in the United States. Despite the current soft patch, our panel of analysts expects that global commodity prices will post solid year-on-year gains in Q4 2018, mostly due to higher prices for oil and its derivatives, as well as for agricultural products. FocusEconomics panelists surveyed this month expect global commodity prices to increase 6.4% in Q4 2018 from the same period in 2017. Next year, however, analysts expect that lower energy prices, especially for oil and coal, will lead global commodity prices to post a smaller increase. The Consensus view among FocusEconomics panelists is that commodity prices will rise 0.9% in annual terms in Q4 2019.
ENERGY | Strong growth in the U.S. and hot weather shore up energy prices Energy prices posted month-on-month gains for the eleventh time in the last 13 months as appetite for energy remains high despite mounting geopolitical uncertainties. Prices rose 0.5% month-onmonth in July, contrasting June’s 1.8% drop. The spread between Brent and WTI oil prices continued to narrow in recent weeks as strong economic growth in the United States boosted demand for WTI crude oil, the oil benchmark for the world’s largest economy. Conversely, Brent crude oil prices, which are more closely tied to global oil trade, declined slightly in July as trade war fears started to materialize. Moreover, Brent oil prices were dragged down by increased supply in Saudi Arabia, other OPEC countries and Russia, in their attempt to compensate for falling production in Libya and Venezuela, as well as in anticipation of potential supply disruptions in Iran as U.S. sanctions loom. Energy prices further benefited from higherthan-normal temperatures in Europe and Asia, which propelled demand for coal. While uncertainty is currently weighing on prices for key energy commodities, mostly oil and oil-related products, the commodity subgroup should post impressive gains this year. Analysts surveyed by FocusEconomics see energy commodity prices increasing 22.7% year-on-year in Q4 2018. Next year, increased oil supply and a broader preference for cleaner energy globally should prompt energy prices to decline 3.7% in Q4 2019.
BASE METALS | Trade disputes and a slowing Chinese economy take their toll on base metal prices Prices for base metals fell at the fastest pace in over eight years in July on the back of rising trade barriers, especially between China and the United States, and the cooling of the Chinese economy, which consumes around half of the world’s base metals. Base metal prices plunged 9.2% month-on-month in July, contrasting June’s 1.6% increase. While the decrease was broad-based, steel prices in the United States continued to rise as the implementation of tariffs on steel imports is boosting domestic prices. The decline in prices of some key commodities, including lead, nickel and zinc, reflected escalating global trade tensions, particularly following the introduction of a 25% tariff on USD 68 billion in bilateral trade between China and United States. The subsequent war of words between the two global powers, which included the U.S. threat to impose tariffs on all Chinese imports and China’s threat of using trade barriers other than tariffs, added more fuel to the fire. Moreover, recent data suggesting that China’s economic growth is slowing put extra downward pressure on base metal prices. Growth in base metal prices will moderate sharply this year, mostly reflecting global demand concerns and trade war fears. Base metal prices are expected to increase 3.8% year-on-year in Q4 2018 before softening to a 1.4% year-on-year rise in Q4 2019.
PRECIOUS METALS | U.S. monetary tightening and global demand concerns drag down precious metal prices in July Prices for precious metals declined for the fifth time in the last six months in July. Precious metals prices fell 3.6% on a month-onmonth basis in July (June: -1.6% month-on-month). The story about precious metals remains largely untouched from previous weeks. Robust economic growth in the United States is forcing the Federal Reserve to tighten its monetary policy. As a result, U.S. yields are rising, shifting capital flows from safe-haven assets such as gold to U.S. dollar-backed assets. Moreover, a somber global economic outlook is prompting reduced demand among investors for industrial metals.
As over the last few months, prices for precious metals will be determined by geopolitical developments and the pace of monetary tightening in the United States further down the road. All in all, our panel of analysts expect precious metal prices to rise 1.3% year-on-year in Q4 2018. The FocusEconomics panel sees prices expanding at a quicker year-on-year pace of 2.6% in Q4 2019.
AGRICULTURAL | China’s tariffs and oversupply concerns send prices down again in July Following a stellar start to the year, agricultural prices declined for two consecutive periods in June and July. Agricultural prices fell 4.3% month-on-month in July, a smaller drop than June’s 7.4% decrease. Prices for corn and soybeans declined further in July following retaliatory tariffs that China imposed on U.S. agricultural products. Moreover, prospects of an excellent harvest for some commodities such as coffee and sugar, as well as favorable weather conditions in cocoa producing countries, exerted downward pressure on prices. Wheat prices, the sole category to post month-on-month gains in July, benefited from hot weather in Europe and Russia, on an anticipated reduction in supply. Strong market fundamentals, along with a low base from last year, will push prices up this year. Our panel of analysts forecast an 15.9% annual increase in prices in Q4 2018. Agriculture prices are seen expanding 0.5% year-on-year in Q4 2019.
Ricard Torné Lead Economist
FUENTE: https://www.focus-economics.com/ Focus Economics - Barcelona España