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China COVID concerns weighing on prices

Most prices fell this week as soaring COVID-19 cases in China raised concerns about the country’s commodity demand. Given the negative impact of COVID-related lockdowns on travel, it is no surprise that there was particular weakness in the price of crude oil. Whilst we still expect the price of crude to rise a little from here as tighter EU sanctions on Russian oil come into effect in December, persistent lockdowns in major Chinese cities is the main downside risk to our forecast.

Industrial metal prices were also mostly down this week, despite the policy changes in China aimed at supporting the property sector. Those changes were essentially aimed at boosting lending to developers and homebuyers, and encouraging consolidation among property developers. However, with consumer confidence so low, we don’t think they will be enough to prompt a recovery in housing starts. Accordingly, we think metal prices, which are still mostly up on the month, have further to fall.

Turning to next week, flash November PMIs will give a glimpse into how commodity demand is faring in the US, Europe and Japan. The data are unlikely to be cheery, and so could drag on commodity prices. Any more deterioration in China’s COVID-19 situation would also be a headwind for prices. Elsewhere, our colleagues will be holding a Drop-In on Thursday to discuss key developments in Asia.

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