After a roller coaster ride… the relief of rising commodity prices

HONG KONG - HSBC says it expects global commodity prices to be 9% lower in 2019 (on average) than the previous year, reflecting the drop seen in late 2018, but for them to rise by 9% in 2020.

Commodity prices have ridden a roller coaster, the bank says in a research note, "much as has been the case for other asset classes, including equities, bonds and credit, in the past six months".

"Slowing global growth, tighter financial conditions and trade policy uncertainty all played a role. But supply side developments were important too, particularly for oil.

"Commodity prices have risen modestly this year to date, as the Federal Reserve has been more dovish, Chinese authorities are providing more stimulus, trade policy tensions have eased and OPEC is constraining its oil supply.

"For many commodities the key supply side themes remain the same.

"For metals, years of low investment, following a 'super-cycle' earlier in the century, means that supply is tight.

"For oil, OPEC producers are seeking oil prices of around USD70 a barrel to meet their fiscal break-evens, but nimble US shale producers can deliver new supply when prices climb.

"Overall, the key difference is that global growth has weakened, and trade tensions remain a threat to demand."  www.hsbc.com (ATI).