Commodities Outlook

Commodities Outlook

Energy supply squeeze to delay decline in prices

Low stocks ahead of winter in the Northern Hemisphere have sent energy prices soaring. In turn, higher energy costs have also constrained the production of other commodities, most notably industrial metals. Energy supply is likely to remain tight for at least the remainder of this year, which is a key reason why we have pushed back our forecasts for a broad-based decline in commodity prices into 2022. By then, once demand for energy has cooled and stocks have been rebuilt, commodity prices are likely to be dragged lower as global economic growth continues to slow. We think that industry and construction activity in China are on the cusp of a particularly deep downturn, which will be a key factor weighing on the prices of industrial metals.

28 October 2021

Commodities Outlook

Price rallies to give way soon to broad-based declines

We think that the widespread rallies in commodity prices from their pandemic-induced lows are now close to, or in some cases already past, their peak. Most notably, we anticipate that Q3 will be as good as it gets for the oil price, and that it will start to ease back by the end of the year as OPEC+ continue to unwind their collective output cut and demand growth slows. Meanwhile, the rally in industrial metals prices already seems to have fizzled out, and we think this will soon give way to a protracted decline in prices as economic growth in China disappoints over the next couple of years.

29 July 2021

Commodities Outlook

Investor-led rally running out of road

Following a spectacular rebound from pandemic-induced lows, we continue to expect that most commodity prices will be falling again by end-2021. Although growth in demand should be strong as the global economic recovery gathers pace, the recent price gains will incentivise supply. This is particularly the case for agricultural commodities, where output can respond quickly to prices. Unusually, supply in the oil market will also be able to rise relatively quickly given that a large amount of capacity is currently offline. Aside from rising supply, commodity prices face a number of other headwinds over the next year including the prospect of a stronger US dollar and higher US Treasury yields. Against this backdrop, we expect that the price of gold will fall. Meanwhile, our forecasts of slowing economic growth in China, as policy stimulus is withdrawn, and softer growth in demand for Asian goods exports point to downward pressure on industrial metals prices.

27 April 2021
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Commodities Outlook

Oil to outperform in 2021

In a reversal of the trend in 2020, we expect oil prices to rise this year and the prices of industrial metals and agriculturals to fall. We suspect that oil demand, particularly in developed economies, could surge in the second half of the year as the vaccine rollout enables the travel and hospitality industries to re-open. In contrast, demand for industrial metals is likely to falter later in the year as China withdraws its policy stimulus and growth in the electronics sector slows. Meanwhile, we expect the supply of agriculturals to improve this year as the La Niña weather phenomenon fizzles out and lockdown measures are eased, allowing access to a larger labour pool. And finally, we are cautiously positive on the price of gold as US interest rates are set to remain at ultra-low levels and real yields could slip on the back of resurgent inflation expectations.

22 January 2021

Commodities Outlook

Recovery to continue, but a bull run is unlikely

Commodity prices will continue to benefit from the stimulus-fuelled recovery in China’s economy over the next year. At the same time, a gradual revival in growth in advanced economies should give a lift to the price of oil, which has underperformed for much of this year. And we expect the price of gold to remain elevated as US real yields edge a little lower. By contrast, we think the recent price rally in agriculturals may lose steam in 2021 if, as seems likely, supply improves.

22 October 2020

Commodities Outlook

China to the rescue

The ongoing recovery in economic activity – from lows earlier this year – will support the prices of most commodities in the second half of 2020 and into 2021. We are particularly positive on the outlook for industrial metals given that much of China’s planned policy stimulus will take the form of infrastructure spending. In contrast, we are somewhat more cautious on the outlook for oil demand given that measures to curb the virus could prompt a more permanent reduction in commuting and business travel. Meanwhile, the price of gold should remain elevated for some time yet given that real yields are likely to remain low.

29 July 2020

Commodities Outlook

It can only get better

At the time of writing, economic activity has ground to a halt around the world owing to virus containment measures. For the most part, commodities prices have plunged given the collapse in demand. We think a gradual revival in economic activity will give a lift to prices later in the year, but they will remain well below levels seen before the virus took hold.

24 April 2020

Commodities Outlook

Cautiously optimistic

A gradual rebound in global economic growth and, in many cases, constrained supply mean that we are broadly positive on the outlook for most commodity prices in 2020-21. One exception is the price of gold, which we expect to fall on the back of lower safe-haven demand. The main risks to our forecasts are lower global growth (maybe as the result of coronavirus) and an escalation in geopolitical or trade tensions.

27 January 2020
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