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Commodity price volatility will prevail as long as trade war threats prevail – BMI

20th July 2018

By: Marleny Arnoldi

Deputy Editor Online

     

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Research firm BMI says most commodity prices will remain neutral on a three-month horizon, with the exception of oil prices which it expects to increase.

Commodity prices performed poorly over June and July, but BMI believes the downside is limited for now as the drop in sentiment overshot market fundamentals.

However, uncertainty and volatility in prices will prevail, owing to concerns over potential trade wars, as no resolutions are in sight in the immediate future.

As such, BMI remains positive on commodity prices from spot level over a one-year horizon, especially in the case of oil, copper, grains and some softs. A tightening market will stoke price gains.

The outlook for ferrous metals remains negative as the slowdown in Chinese metal demand-related economic sectors, which has become more apparent in recent months, will continue in the second half of the year.

The rise in US protectionism has had a significant impact on the steel and aluminium markets as the US imposed tariffs on imports from key major suppliers including the European Union and Canada. These have kept US prices at a premium over other regions.

“Although the US–China metal trade flows are not directly impacted by the ongoing dispute for now, concerns over Chinese growth owing to trade war risks are sending international prices lower.

“We believe that downside for prices is limited as fundamentals for metals are unlikely to be significantly impacted for the moment. We note that all major nonferrous metals from ores to refined products are targeted with the proposed additional 10% tariff on $200-billion of Chinese goods that President Donald Trump has threatened to impose,” says BMI.

The agency adds that this is also the case for machinery and equipment, which are metals-intensive. As a result, the potential full implementation of this new round of tariffs would, in theory, dent Chinese metal demand.

However, Chinese authorities would look at stimulating the economy in order to prop up growth should economic headwinds become too pressing.

“Although, in our view, this stimulus plan is unlikely to increase infrastructure spending directly, it would indirectly support economic growth and, consequently, metals demand.”

OIL OUTLOOK

BMI is most positive about oil in the short term, stating that prices have fallen too far in recent weeks, in light of continued production losses in Venezuela, aggressive decline rates in Asia, the re-imposition of sanctions against Iran and a lack of new supply that is set to come online.

BMI has adjusted its forecast to an average Brent crude oil price of $75/bl for 2018 and $80/bl for 2019, compared with $73/bl and $78/bl, respectively.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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