All quiet on the commodities front

There were few large moves in commodity prices this week. China’s activity data for the first two months of the year, published on Wednesday, were reasonably strong but failed to give a material lift to industrial commodity prices. The focus will move to the US next week. Jerome Powell will chair his first FOMC meeting and is likely to announce a 25bp rate hike. We think that this is now largely priced into markets and as such should not weigh on the prices of commodities, even gold. There is also a risk that President Trump will announce more extensive tariffs on US imports from China. The tariffs reportedly being considered – as a response to China’s theft of intellectual property from US firms – would cover up to $60bn worth of goods (about 12% of China’s total goods exports to the US). So far, China has been relatively muted in its response to targeted US tariffs on washing machines, solar panels and metals. However, if these wider tariffs are imposed, retaliation appears inevitable with negative consequences for global trade volumes and commodity prices.
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Commodities Weekly Wrap

A good start to a bad year for commodity prices

Most commodity prices increased this week, with coal prices leading the pack on the back of Indonesia’s ban on coal exports this month. That said, we don’t see commodity prices rising for much longer. Indeed, Chinese imports of most raw materials fell back in December, with an especially sharp decline in imports of industrial metals. We think this is a sign of things to come in 2022. Weaker Chinese growth is one of the main reasons why we expect most prices to fall this year. Looking ahead, prices of energy and energy-intensive commodities could well be swayed by tensions between Russia and Ukraine and its allies. If tensions continue to build, this could lead to sharp swings in the price of European natural gas in particular. High gas prices in Europe have already led to the curbing of some energy-intensive metals production, including aluminium and zinc. On the data front, China will release Q4 GDP figures on Monday, which we expect to show weaker y/y growth. OPEC will also publish its December oil supply numbers on Tuesday. We expect another month of below-target output.

14 January 2022

Commodities Update

Prices to come off the boil in 2022

After a stellar run in 2020-21, we expect the prices of most commodities to ease back this year as economic activity slows, notably in China, and supply bottlenecks start to ease. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022

Commodities Economics Chart Book

Omicron risks receding; energy still in short supply

Two themes have dominated commodity markets at the turn of the year: the ongoing shortage of energy commodities and the global rise in cases of COVID-19. On the former, we think that shortages will start to ease meaningfully later this year, which will weigh on the prices of both energy commodities and other commodities with energy-intensive production processes. However, we think the oil market may be dismissing the Omicron-related hit to demand a little too readily. After all, demand in the US has already softened significantly, and China has imposed new restrictions as part of its ‘zero-COVID’ strategy. As a result, the hit to oil demand may be larger and longer-lived than is currently priced into markets, which could lead to a sharp reversal in oil prices in the near term.

7 January 2022

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Emerging Europe Economics Update

What should we make of Russia’s data revisions?

The upwards revisions to Russia’s industrial production figures have raised concerns about the quality of the data but, based on the figures released so far, the new series does seem to reflect economic conditions more accurately than the older series.

29 June 2018

Middle East Economics Update

Egypt rates on hold, easing cycle to resume in September

The Egyptian central bank’s decision to leave interest rates on hold (rather than lower rates) was a response to recently-announced subsidy cuts that will push up inflation. But the easing cycle is likely to resume at September’s MPC meeting. And we still think interest rates will, ultimately, be lowered by more than most analysts expect over the next couple of years.

28 June 2018

Energy Focus

Is the sun setting on the oil market?

Slowing economic growth and rapidly rising fuel efficiency, partly due to a surge in the number of electric vehicles, mean that growth in demand for oil will slow and eventually peak over the next twenty years. At the same time, plentiful oil reserves mean that supply should be ample. Indeed, the marginal cost of production is likely to fall as OPEC loses its pricing power and advances in shale technology force more expensive forms of production out of the market. As a result, we expect real oil prices to trend down over the next two decades.

28 June 2018
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