US-China trade war to keep lid on commodity prices

Baku, Azerbaijan, Sept.4

By Leman Zeynalova – Trend:

US-China trade war is expected to keep a lid on commodity prices, Trend reports citing UK-based Capital Economics research and consulting company.

“The escalation in US-China trade tensions led to investors becoming more risk averse, which boosted the prices of gold and silver but depressed the prices of agricultural and industrial commodities. Looking ahead, we expect trade tensions to escalate and to be a factor keeping a lid on prices,” said the company.

US-China trade tensions have escalated this summer, with two rounds of bilateral tariff hikes prompting both sides to affirm they are in a state of a full-fledged trade war. Despite numerous high-level meetings and ongoing talks, both the U.S. and China have raised the trade barriers, with currently 75 bn USD of U.S. exports to China and 550 bn USD of Chinese exports to the U.S. targeted by tariffs.

From Sep 1, a new volley of trade tariffs kicked in from both sides. For the first time, China targeted U.S. crude oil (5% tariff) that added to existing tariffs on propane (increased to 30%), MEG/methanol (25%), and LNG (25%).

“Oil prices fell again in August on concerns about the outlook for global growth. Indeed, our global GDP forecasts suggest that oil demand will weaken. Investors in the market have shrugged off persistent falls in Saudi Arabian output and increased their short positions in the WTI futures market,” said the company.

In contrast, according to Capital Economics, natural gas prices have jumped, which could be the start of the seasonal increase in prices as the Northern Hemisphere winter approaches.

“We think that the ramping up of US LNG exports and, as a result, tighter domestic supply will lead to a marked rise in the Henry Hub price over the year ahead. Elsewhere, coal prices continued to ease back. In the case of Pacific coal, the price fell despite data somewhat stronger activity in China in August . And European coal prices declined, even though stocks were drawn down. That said, the bigger picture is that stocks are still high by recent standards,” said the company.

As for industrial metals, the prices of most of them drifted lower on the back of concerns about demand. “In contrast, the prices of nickel and cobalt shot higher due to the prospect of constrained supply. We think the supply fears around nickel are overdone and expect its price to drop back in the year ahead.”

“Having slumped in July, there was a reversal of fortune for the price of cobalt as it became the best performer in August . Triggering this turnaround was the announcement by Glencore that it was closing the world’s largest cobalt mine, Mutanda. Given low exchange stocks, prices could even rise further . The price of nickel also soared, buoyed by supply fears, particularly at the end of the month when Indonesia confirmed that it was bringing forward its ore export ban by two years to January 2020. This sent the market into its largest backwardation for a decade. We think this rally will eventually unwind,” said Capital Economics.

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Follow the author on Twitter: @Lyaman_Zeyn

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