Fears of protectionism weigh on prices

The Fed’s decision to hike its target rate by 25bp and the announcement that the US was going to press ahead with a 25% tariff on imports of Chinese goods prompted a rally in the dollar, which in turn weighed on commodity prices. China has already said it will retaliate, notably with a 25% tariff on soybeans, which was a key factor in the 4% slump in their price this week. Softer Chinese activity data for May, released on Thursday, also worried investors, particularly in the industrial metals markets.
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Commodities Weekly Wrap

Energy price rally may spill over to other commodities

Most commodity prices increased this week. Optimism over electrification, which was a hot topic during LME Week, seemed to feed through into higher industrial metals prices. But the prices of energy commodities were the pick of the bunch. Brent crude rallied throughout the week and briefly breached $85 per barrel on Friday. OPEC’s monthly oil market report showed that output in September was still 390,000 barrels per day short of target. As prices rise, there are growing calls for higher OPEC production. But it seems doubtful that the group could raise output much faster, unless it abandons the current quota system. Meanwhile, a cold spell that has blown through China has compounded upward pressure on energy prices. That is in addition to the Chinese government allowing coal-fired power prices to rise by up to 20% from base levels from Friday. Looking to next week, China is set to publish its September activity and spending data and Q3 GDP on Monday. We suspect that China’s economy contracted in q/q terms. So far, commodity prices have largely shrugged off the slowdown in China’s economy. And we wouldn’t be that surprised if they continue to do so as currently elevated energy prices spill over to other commodity markets by substantially raising production costs of agriculturals and metals.

15 October 2021

Commodities Update

Downturn in China’s commodity imports intensifying

China’s imports of key commodities slumped almost across the board in September. The main exception was imports of coal, which soared in response to recent power shortages. We expect coal imports to remain strong over the next few months, but they too will eventually fall back next year.

13 October 2021

Commodities Update

How high energy prices affect other commodity prices

As energy prices hit multi-year highs, we look into the link between energy and non-energy commodity prices. It is clear that industrial metal prices track energy prices the most closely over time, which is mainly because the drivers of demand are similar. That said, industrial metals, like many commodities, require large energy inputs to produce, which is another reason why their prices tend to move together.

11 October 2021

More from Capital Economics Economist

US Economics Weekly

Stronger growth not generating major imbalances

After the Fed’s decision to raise interest rates by another 25bp, Fed Chair Jerome Powell claimed in the post-meeting press conference that “the economy is doing very well” – we couldn’t agree more. That view was bolstered by May’s retail sales figures, which suggested that both consumption and GDP growth will rebound strongly in the second quarter, to above 4% annualised. The Fed’s financial account data, released last Friday, illustrate that the economic expansion is not being accompanied by a sharp rise in private sector debt. Rising household wealth is prompting households to save less of their incomes and firms have plenty of resources to fund investment, not least thanks to the 2017 tax reform. The main vulnerability is a renewed surge in Federal debt, but even that wasn’t as bad as it looked, because it was boosted by the suspension of the debt ceiling and partly matched by a rise in assets held in the Treasury account at the Fed.

15 June 2018

Canada Economics Weekly

Household debt will remain a risk for years to come

The news earlier this week that household debt had edged down to 168.0% of disposable incomes in the first quarter, from 169.7% in the final quarter of last year, was greeted by some as confirmation that the Bank of Canada had somehow engineered a soft landing in the housing market. It hasn’t. Debt usually surges in the fourth quarter ahead of the Holiday season and falls back in the first quarter, as people pay down their credit cards. Moreover, by focusing on debt exclusively, those commentators also conveniently failed to note that overall household net worth declined to a two-year low of 857% of disposable income.

15 June 2018

China Economics Focus

Headwinds mount

A trade spat with the US is one of a number of headwinds facing China’s economy over the coming year. They point to a slowdown not a slump. But the outlook further ahead is no better. Policymakers’ reluctance to allow market forces to determine economic outcomes is eroding the advantages that have kept China an economic outperformer for so long. China’s average growth over the coming decade is likely to be much weaker as a result.

15 June 2018
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