Commodity price trends remain mixed in the short term

by: Casper Burgering , Georgette Boele , Hans van Cleef

Over the past month, the CRB commodity index rose by almost 2%, which was mainly due to the price gains in oil and gas. Going forward, higher geopolitical tensions could potentially push prices higher. Industrial metal prices remained soft, while precious metal prices lost ground.

Agricultural prices were mixed. Grains markets reacted swiftly to trade war news, while soft commodity is managed to show some mild price gains on supply deficits and Brazilian real weakness.

Monthly-Commodity-Insights-Nov-2019.pdf (859 KB)

Commodity and risk appetite

Risk appetite in commodities returned this month on hopes of a phase one trade truce. This supported investor sentiment only briefly, mainly because China and the US announced that an agreement still is ‘in the making’. Uncertainty remains. The lack of progress in the trade war continues to leave its mark on the global economy. This negatively affects commodities demand in general.

The focus of commodity markets is on trade war progress and central bank policy support.

Energy: A lack of direction in oil prices

The IEA lowered its demand growth forecasts to +1 mb/d in 2019 and +1.2 mb/d in 2020 based on lower economic growth. This should cap the upside potential of oil prices. Higher oil production in the US will also add to the well-supplied market. Meanwhile, higher geopolitical tensions could potentially push prices higher.

Precious metals: Positive on gold but wait for the correction to jump in

For 2020 we are more optimistic for gold prices if a considerable amount of long positions has been closed. Our year-end 2020 gold price forecast remains at USD 1,600 per ounce.

Base metals: Green shoots of risk appetite improvement

End-user activity is stagnating and that is having a negative effect on final metals demand. Due to the uncertainty, end users delay their purchases and rely on their inventories. We think that trade woes and macroeconomic worries will continue to impact prices, keeping market sentiment down.

Ferrous metals: Lower raw materials costs improves steel mill margins marginally

We still hold the view that steel-market conditions will not change significantly in the short term. This means that prices for HRC steel will remain soft for the time being. Restocking activity and a seasonal uptick in demand during Q1 2020 can provide a revival in prices, but we expect them to soften further during 2020.

Agriculturals commodity: Supply dictates price direction in most agricultural markets

In 2019/2020 global wheat supplies will remain high. This means that prices will remain soft.

For 2019/2020, corn production will contract and demand will slide. As a result, stocks will decline which will underpin prices.

Global soybean output is expected to decrease, while demand will rise further. This means that prices will rise in the coming season.

The risk of an increase in Indian sugar exports still hangs over the market. Accumulated stocks in India over the past months will keep price gains muted.

The cocoa market will remain in surplus during 19/20, but relative to demand this is very low. Demand in Asia will increase. This means prices will edge slightly higher going forward.

Coffee supply will remain high going forward, which will keep prices soft.