Commodities Outlook

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 Meanwhile, our forecasts of slowing economic growth in China, as policy stimulus is withdrawn, and softer growth in demand for Asian goods exports point to downward pressure on industrial metals prices.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

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
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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

Commodities Outlook

Turning a corner in 2020

While there appears to be little to lift spirits in the near term, we think the macro-economic backdrop for commodity markets will turn more positive during 2020. We expect global economic growth to pick up over the course of the year, which in turn will prompt a rise in investor risk appetite. Both developments should give a boost to commodities demand. Meanwhile, the supply of oil and many of the industrial metals is likely to remain constrained next year, adding to the upward pressure on prices. In contrast, we expect the price of gold to fall on the back of weaker demand for safe havens.

18 October 2019

Commodities Outlook

Not out of the woods yet

Subdued economic growth will weigh on the prices of most industrial and energy commodities for the remainder of 2019. What’s more, our view that there will be a further escalation in the US-China trade war could have particularly negative consequences for industrial metals demand. In contrast, the price of gold will remain supported by the economic uncertainty and safe-haven buying.

19 July 2019
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