Tightening oil market; Myanmar’s tin mining ban

It’s been a mixed week for commodity prices. Industrial metals price generally struggled as activity surveys for China paint a grim picture of demand. (See Chart 1.) We suspect prices will tread water over the rest of the year as Chinese fiscal stimulus puts a floor under prices. But the risk to this view is that stimulus underwhelms. Meanwhile, precious metals also came under downward pressure due to a strengthening in the US dollar, which could remain a headwind in the coming quarters.

Several agriculturals were the largest fallers, perhaps as a result of some initial overshooting amid last week’s spike in prices in the aftermath of the collapse of the Black Sea Grain Initiative. We think the apocalyptic headlines concerning supply exaggerated the risks, so we’re not surprised that prices have dropped back a bit. Still, the supply outlook has deteriorated so have we revised up our price forecasts. For wheat, that implies a small rise from here, however for corn we think prices could fall a little further.  

Looking ahead, we think US inflation figures, released on Thursday, will continue to provide evidence that inflation is falling sharply, and hint that the Fed might be able to engineer a soft landing, which could buoy commodity prices. Earlier in the week, China’s trade figures will reveal whether the rebound in oil demand continues to have legs, even while the recovery in other sectors of the economy has begun to falter.