Short-term pain, long-term gain

We think that the prices of most commodities will fall this year as global economic growth remains weak and investor risk aversion returns. While policy in China has become more accommodative, it is on a limited scale and is only likely to stabilise growth rather than provide a sustained lift. Meanwhile, growth in the euro-zone, the US and Japan has also slowed, pointing to subdued commodity demand. Turning to 2020, the outlook for commodity prices is more positive. We suspect that the Fed will be in easing mode, which should prompt a return of risk appetite. Indeed, our forecast of rising equity markets in 2020 is a key reason why we expect higher commodity prices. By 2021, we see a cyclical recovery in the US economy giving a boost to commodity markets more generally. Admittedly, we think that China will be in a structural slowdown. But while this should have negative implications for industrial commodity markets, constrained supply growth of many metals suggests that prices should still rise.