Weak demand will weigh on prices for some time

The demand backdrop for commodities appears weak. While oil prices rose this week, they remain low by recent standards at $70-75 per barrel. Industrial metal prices, which rallied late last year and early this year on hopes of a resurgence in demand in China, have fallen this week. Admittedly, a few commodity prices have risen significantly so far this year – namely coffee, cocoa and sugar – but those gains are due to supply concerns. We think demand weakness will contribute to an unwinding of even those gains soon.

Turning to next week, the key item on the agenda is the extension of the Black Sea Grain Initiative. The deal is scheduled to expire on 18th May. There are reports in Russia’s state media today that Russia will agree to an extension. On the data front, China will release activity data for April next week. If those confirm our suspicions that the re-opening boost to China’s economic growth is starting to fade, then commodity prices – particularly industrial metals – could fall.

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