Metallic thud as commodities prices decline in July

SYDNEY - After steady gains over the first half of 2018, commodity prices have undergone a modest correction over the past two months. After a small dip in June, prices fell by a further 2% overall in July.

However, says HSBC in a research note issued today, the aggregate does not tell the full story.

“There were sharp price declines almost across the board; prices were down for 27 of the 31 commodities we monitor,” says HSBC.

“The main offset was from oil, which makes up a little over half of our index, and experienced slightly higher average prices in the month.

“Metals prices showed the most pronounced declines. Zinc led the way, falling by 14% on average in the month, while prices for copper fell 11%, nickel and lead were down 9%, and aluminium prices fell 7%.

“The main driver of the metal prices falls was concerns over the strength of global demand for these commodities.”

The report says tTrade tensions have continued to escalate and Chinese growth indicators have lost some momentum, with infrastructure investment, which is a major source of demand for metals, slowing noticeably.

“For metals, the outlook for China is the key.”

Agricultural commodities were also weaker across the board in July.

Many grain markets, which had generally shown prices rising through most of this year to date, saw sharp falls in July.

Wheat prices fell by 2%, while corn prices were down 4% and soybean prices declined by 8%. Barley remained the exception, with prices rising by 2% for the month as warm, dry weather in Europe makes it more likely that the market will tighten even further.

Meanwhile, there were also sharp price declines for pork (-8%), beef (-7%), lumber (-8%), and sugar (-7%).

HSBC says weakness in these markets mostly reflected concerns about global demand, given rising trade tensions.

In contrast to metals and agricultural goods, energy commodity prices generally rose in July.

Thermal coal prices continued to advance, up 3% for the month to now be 19% higher than at the end of 2017.

Oil prices were up 1% on average, thanks to a 5% lift in the WTI price – the Brent and Dubai prices fell slightly.

“Looking at the daily numbers, oil prices peaked in early July and have eased back but have avoided the sharp price declines seen elsewhere.”  www.hsbc.com.au (ATI).