Global commodity prices rose by 3.8%MoM in September, as against a drop of 5.3% in August and marking the strongest increase in five months. September rebound mostly reflected a surge in energy prices, as well as sizeable increases in prices of base and precious metals. Overall, the price of three commodity groups was positively affected by news that China and the United States would resume trade talks and President Trump’s comment that a deal could he reached sooner than expected. On the flip side, agricultural prices declined in September for the seventh time in the last nine months. Weak prospects for the global economy continued to weigh on commodity prices, especially energy and base metals. Conversely, a somber outlook for the global economy is fanning demand for safe-haven assets such as precious metals. Against this backdrop, analysts expect global commodity prices to decline 6.6% in 4QCY19 over the same period in 2018.
Precious Metals
Precious metal prices increased 2.0%MoM in September, decelerating from 5.2% rise in August, but marking the fourth consecutive monthly gain nonetheless. Precious metal prices continued to benefit from strong demand for safe-haven assets amid an uncertain global economic outlook, loose monetary policies across the globe and rising geopolitical threats. That said, recurrent news that China and the United States could reach a trade deal put some downward pressure on precious metal prices. Meanwhile, palladium prices resumed their strong upward trend in September following a short-lived drop in August. Palladium prices are underpinned by solid demand for gasoline cars and supply constraints. Analysts forecast precious metal prices to increase by 21.8% in 4QCY19 as compared to the same period of 2018 on the back of weak global growth and heightened geological risks.
Base Metals
Base metal prices rose 1.4%MoM in September, contrasting a 3.1% decrease in August. Base metal prices have fluctuated in recent weeks, mostly tracking developments in China, which consumes around half of all base metals. The restart of trade talks between the two superpowers and supply fears boosted base metal prices. Nickel prices rose at a double-digit figure for the third month in a row as Indonesia, which accounted for 22% of global nickel exports in 2018, will ban exports of nickel ore in order to develop domestic manufacturers of the commodity. Plans to shut down a major mine in the Democratic Republic of Congo also prompted cobalt prices to post double-digit growth in September. Conversely, weak manufacturing activity worldwide weighed on steel prices. Analysts see base metal prices falling 6.4%YoY in 4Q4CY19 on poor economic dynamics in China. A swift resolution of the trade dispute between the two superpowers could reverse the fortunes for base metal prices.
Energy Products
Prices of energy products rose 5.1%MoM in September; contrasting 5.9% drop in August, hopes of a prompt resolution of the China-U.S. trade war, buttressed prices of oil and oil-related commodities. Particularly, a drone attack on Saudi oil facilities prompted Brent oil prices to log the strongest jump on record more recently. However, somber prospects for the global economy led oil prices to sharp decline, suggesting that overall energy prices could average lower in October as compared to September. Furthermore, natural gas prices posted the largest increase in 10 months on solid demand and low inventory levels. Conversely, thermal and coking coal prices continued to fall due to weakening growth in China. Analysts see energy prices dropping 9.2% in 4QCY19 compared to the same period in 2018. With WTI and Brent oil prices representing the bulk of energy commodities, the expected drop in the two benchmark oil prices will lead the overall decline in energy sector. Moreover, weak growth in China and the continuous shift to renewables will cause coking and thermal coal prices to decline by almost a third in the period. A sharp drop in natural gas prices will mostly reflect a large base effect from 4QCY18. Analysts see the downturn in prices softening next year and caution decline in energy prices.
Agricultural Commodities
Prices of agricultural commodities declined 0.7%MoM in September, contrasting sharper decline of 7.8% in August. September represented the seventh decline in the last nine months. Unlike previous months, the drop in September was the result of declines in only 3 of the 10 leading agricultural commodities. Wool prices led the overall decline as the price of the commodity remained under pressure due to subdued growth in China, which buys 75% of all Australian wool exports. Sugar prices declined on expected healthy crop harvests in India. Although, corn prices were negatively affected by news of strong production at the start of September, these recovered by the end of the month on news that supply has been tightening in the United States. Analysts expect agricultural prices to remain under pressure. The decline in prices reflects ample supply of key agricultural commodities. However, analysts forecast price to recover in the near future.