Supply prospects take centre stage

Supply-side developments were the key driver of most commodity markets this week, but they are pushing prices in opposing directions. In the oil market, supply concerns sent Brent crude to a 46-month high. In contrast, signs that China might adopt looser pollution controls this winter weighed on the prices of most industrial metals. The divergence between energy and industrial metals continues a pattern that began in mid-June but we doubt it will persist. Our view remains that most commodity prices will move lower over the next 6-12 months. China will remain in the headlines next week, with both the official and Caixin manufacturing PMIs for September set to be published on Sunday. We expect a slight fall in both indices and this may heighten concerns about the slowdown in China, possibly sending non-oil commodity prices even lower. Thereafter, the closure of Chinese financial markets may mean commodity markets are also relatively quiet until US non-farm payrolls are released on Friday. We expect these to rise more than the consensus and this may cause an extension of this week’s fall in the price of gold.