OVERVIEW | An uncertain global economic outlook continues
to weigh on commodity prices
Global commodity prices recorded a fourth consecutive monthly
decline in September due to slowing growth in China and
widespread uncertainties over the evolution of the global economy.
Global commodity prices declined 1.3% over the previous month
in September, moderating from August’s 2.5% decrease.
September’s decline in global commodity prices reflected a
sizeable drop in prices for agricultural products due to strong
harvest pressures and spillovers from the trade war between the
United States—a major supplier of agricultural products—and
China—a key global buyer of food. Base metal prices continued
to retreat in September on the back of softer growth prospects for
China, the largest purchaser of base metals worldwide. On the
flip side, energy prices climbed in September, mainly reflecting
the ongoing rally in oil prices due to supply concerns. While the
price for precious metals was largely unchanged, a more detailed
analysis reveals that this was mostly due to soaring palladium
prices.
Although global commodity prices will rise overall this year,
the pace of increase is gradually slowing, which reflects an
increasingly uncertain global economic outlook. Moreover, the
increase expected by the end of this year will be mostly driven by
higher prices for oil and its derivatives as well as for nickel, U.S.
steel and some agricultural products. FocusEconomics panelists
surveyed this month expect global commodity prices to increase
0.6% in Q4 2018 from the same period in 2017 (previous edition:
+3.7% year-on-year).
Next year, global commodity prices will expand at a faster
rate due to a recovery in prices for base and precious metals.
Conversely, the rally in energy prices is expected to end next year
and prices are predicted to moderate. The Consensus among
FocusEconomics panelists is that commodity prices will rise 3.0%
in annual terms from Q4 2018 to Q4 2019.
ENERGY | Oil supply concerns propel energy prices in
September
Energy prices increased briskly in September following the erratic
trajectory observed over the previous three months, largely due to
the rally in oil prices. Energy prices rose 5.5% month-on-month in
September, contrasting August’s 1.0% decrease.
Reduced oil supply in Iran in the wake of the new round of U.S.
economic sanctions, which will come into force on 4 November
and will further afflict the country’s oil sector, is tightening global
oil supply. Global oil output is also negatively affected by the perennial production decline in Venezuela as well as in Angola and
Nigeria, while there is growing skepticism that Russia and Saudi
Arabia will be able to completely offset the expected drawdown of
Iranian oil from the global markets. Higher crude oil prices are also
pushing up prices for its derivatives, including gasoil and gasoline.
Moreover, uranium prices are benefiting from reduced supply and
an expected increase in demand.
The boom in oil prices observed this year will prompt energy
prices to rise a sharp 24.5% year-on-year in Q4 2018 (previous
edition: +22.1% yoy). However, energy prices are expected to fall
4.3% in Q4 2019 as the ending of the OPEC-led oil cap deal and
increasing supply in the United States will boost oil production,
while less robust global growth will reduce demand for the black
gold. In addition, the broader preference for cleaner energy will
reduce demand for coal.
BASE METALS | Trade tensions and cooling growth in China
take their toll on base metal prices
Base metal prices declined for the third month in a row in
September, mostly reflecting concerns about global economic
growth, especially in China, which consumes around half of
all base metals. Prices for base metals dropped 1.7% over
the previous month in September, although this was a milder
contraction than August’s 3.0% month-on-month drop.
Nickel prices marked the sharpest decline in September,
plunging to the lowest price so far this year on 11 September,
due to escalating trade tensions between China and the United
States, concerns over China’s growth and weak steel prices.
Other commodities such as lead, tin and zinc also felt the brunt
of slowing Chinese growth. U.S. steel price momentum faltered in
September after prices had soared to multi-year highs in recent
months following the introduction of U.S. steel tariffs earlier in the
year. Conversely, alumina prices continued to climb in September
as supplies increasingly tighten due to the partial closure of Norsk
Hydro’s Alunorte refinery in Brazil, the world’s biggest alumina
plant.
Rising trade protectionism and slower growth in China will weigh
on base metals’ performance this year. However, the situation
should gradually improve in 2019. Our panel of analysts see
base metal prices falling 2.7% year-on-year in Q4 2018 (previous
edition: +0.8% yoy) before rebounding to a 3.5% year-on-year
gain in Q4 2019.
PRECIOUS METALS | Solid fundamentals for palladium
support base metal prices in September
Prices for precious metals increased for the first time in five
months in September. Far from being broad-based, the increase
was entirely due to a sharp rise in palladium prices, driving some
analysts to speculate whether the commodity was entering a
bubble. Precious metal prices increased a mild 0.3% on a monthon-month
basis, contrasting August’s 2.9% decline.
Palladium prices rallied in September on data suggesting a surge
in demand for catalytic converters and strong car sales in Europe.
Moreover, stagnant supply indicated that the palladium market will
likely remain in deficit next year. On the flip side, higher interest
rates in the United States are reducing appetite for safe-haven
assets such as gold and, to a lesser extent, silver and platinum.
Moreover, platinum prices are suffering from reduced demand for
diesel vehicles.
In response to the reduced attractiveness of safe-haven assets
in the wake of the U.S. Federal Reserve tightening cycle and a
more somber global economic outlook—which is hitting industrial
usage of precious metals—precious metal prices are expected to
fall 3.4% year-on-year in Q4 2018 (previous edition: -0.3% yoy).
Next year, however, precious metal prices are likely to benefit
from a more turbulent economic panorama and are seen rising
5.5% in Q4 2019.
AGRICULTURAL | Ample supply and trade disputes push
down agricultural prices in September
Agricultural prices declined for the fourth consecutive month
in September due to ample supply for key commodities and
spillovers from the ongoing trade spat between China and the
United States. Agricultural prices fell 5.3% month-on-month in
September, sharply down from August’s 0.5% decrease.
Wheat prices posted the sharpest decline in September due to
expectations of bumper supply. Soybean prices also recorded a
sizeable drop as China shifts away from purchasing the commodity
from the U.S. to other countries such as Brazil, amid tit-for-tat
trade disputes between the two countries. Prices for coffee, corn
and cotton also fell in September. On the flip side, wool prices
continued to rally on supply shortages and strong demand from
China and Europe, while sugar prices bucked the downward trend
in the previous two periods due to expectations of low crop yields
in key producing countries.
Agricultural prices are expected to recover in 2018 from the dismal
performance recorded in previous years. Along with a low base,
agricultural prices will benefit from tighter supply. FocusEconomics
Consensus Forecast panelists expect agriculture prices to
increase 7.3% year-on-year in Q4 2018 (previous edition: +12.2%
yoy). Gains in agriculture prices, however, will moderate further
down the road and FocusEconomics panelists see prices rising
3.7% year-on-year in Q4 2019. Por Ricard Torné
Lead Economist
Por Focus Economics - https://www.focus-economics.com/ - Desde Barcelona España
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