Industrial slowdown in China a headwind for prices

Industrial slowdown in China a headwind for prices

The prices of most industrial commodities held up fairly well this week. However, the slowdown in broad credit growth and the fall in volume terms of China’s imports of industrial commodities in May suggests that commodity demand there is coming off the boil. This chimes with our view that industrial commodity prices will fall later this year as demand growth in China weakens even further. Turning to next week, the key data release for commodity markets will be China’s May activity and spending data (Wednesday). We suspect the data will show further evidence of an economic slowdown, which should weigh on commodity prices. Meanwhile, we expect the Fed to keep its policy settings unchanged at its meeting next week, but if the Fed continues to push back on market expectations for earlier rate hikes, then the US dollar could depreciate which could put a floor under prices.
Continue reading

More from Commodities

Commodities Update

Sugar no longer in a sweet spot

Even after accounting for a fall in Brazilian production and a rise in global demand, we still expect the size of the global sugar market surplus to increase in 2021/22, which will weigh on prices.

8 June 2021

Commodities Update

China’s iron and copper imports to fall further

China’s imports of industrial commodities, particularly iron ore and unwrought copper, eased back in May. We expect import volumes of both these commodities to fall further in the coming months as policy support continues to be gradually withdrawn.

7 June 2021

Commodities Weekly Wrap

Oil prices to rise a little further as OPEC+ hold the line

In what proved to be one of the shortest OPEC+ meetings ever, the group agreed this week to stick to its previously planned increase in output in July. Oil prices rose sharply on the back of the announcement, with Brent now trading above $70 per barrel. However, OPEC+ members seemingly didn’t discuss how to deal with the prospect of additional supply from Iran, which we suspect will be a contentious topic at future meetings. Nevertheless, our central forecast is that OPEC+ maintains a gradual approach to relaxing output cuts, which should keep the oil market in a deficit in the near term and push prices a little higher. Turning to next week, we expect China’s May trade data (Monday) to show a further decline in import volumes of industrial commodities, albeit from historically high levels. This would add to concerns around the strength of China’s metals demand which contributed to a fall in the prices of most industrial metals this week, with copper slipping back below $10,000 per tonne.

4 June 2021

More from Commodities Team

Commodities Weekly Wrap

Oil prices to rise a little further as OPEC+ hold the line

In what proved to be one of the shortest OPEC+ meetings ever, the group agreed this week to stick to its previously planned increase in output in July. Oil prices rose sharply on the back of the announcement, with Brent now trading above $70 per barrel. However, OPEC+ members seemingly didn’t discuss how to deal with the prospect of additional supply from Iran, which we suspect will be a contentious topic at future meetings. Nevertheless, our central forecast is that OPEC+ maintains a gradual approach to relaxing output cuts, which should keep the oil market in a deficit in the near term and push prices a little higher. Turning to next week, we expect China’s May trade data (Monday) to show a further decline in import volumes of industrial commodities, albeit from historically high levels. This would add to concerns around the strength of China’s metals demand which contributed to a fall in the prices of most industrial metals this week, with copper slipping back below $10,000 per tonne.

4 June 2021

Metals Chart Book

Strong month for metals not a sign of things to come

May was a strong month for the prices of most metals, but we suspect that this may be as good as it gets. After all, if we’re right in expecting economic growth in China to slow in the second half of this year, the prices of most industrial metals are likely to end the year lower. Meanwhile, the recent rise in the gold price has been far larger than is implied by the fall in real yields, and we think that the gold price will come under renewed downward pressure in the months ahead as real yields start to creep higher.

3 June 2021

Energy Chart Book

Prices to be falling by end-year

Cold weather in parts of the northern hemisphere helped push up the prices of coal and natural gas last month, while oil prices also rose. We still think that average energy prices will be higher this year than last but expect the prices of coal and oil to start to decline towards the end of this year.

2 June 2021
↑ Back to top