BAKU, Azerbaijan, July 26. Energy and raw materials sectors of the global stock markets will underperform over the next few years, Trend reports, citing Capital Economics, UK-based research and consulting company.
“Worries that high inflation, and the large interest rate hikes required to tackle it, will lead to a sharp global slowdown have sent the prices of industrial commodities crashing down in recent weeks. Since its peak on 9th June, the S&P GSCI Energy Spot – which is comprised mainly of oil and its derivative products – has fallen by nearly 20 percent. The prices of industrial metals – which had already retreated from their highs – have declined since early June by a similar amount in percentage terms too,” the report said.
As Capital Economics noted, another reason why things have not been going as well in the materials sector since the beginning of 2021 as many might have assumed is that the increase in metal prices over this period was partly due to higher production costs, as energy prices increased, putting pressure on margins. Apart from these caveats, concerns about demand, which have affected the prices of industrial metals, have also affected the materials sector.
Meanwhile, Capital Economics suspects that in the next few years, energy prices will be slightly lower than in the stock market as a whole, as oil prices are declining. Although sanctions against Russia complicate the picture, there is an assumption that demand growth will slow down in general, while the supply of oil, especially from the US and OPEC+ countries, is gradually increasing compared to current levels.
The company forecasts the price of Brent crude oil to fall from the current $105 per barrel to $100 per barrel by the end of 2022, and to $80 per barrel by the end of 2023.
“We are also downbeat about the prospects for the materials sector. Admittedly, we do not anticipate big further falls in industrial metals prices, partly because we think China’s metals-intensive economy has now passed a cyclical trough and because we forecast that energy input costs, especially in Europe, will stay very high, as natural gas and coal prices remain elevated. Even so, our view is that China’s economy will steady, rather than rebound, at the same time as demand elsewhere softens. Although high production costs might support metals prices, they would also continue to be a drag on the profits of materials firms,” the company concluded.
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