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What kept commodities market ticking in 2018?

Author: Abhishek Bansal/Wednesday, December 26, 2018/Categories: Exclusive

What kept commodities market ticking in 2018?

As a number of geopolitical events rocked the globe, the commodities market remained volatile during 2018. Crude oil prices surged when US President Donald Trump announced sanctions on Iran. Industrial metals along with silver and copper slummed as the US went on a tariff war with China and other countries. Natural Gas was the only commodity which has given significant returns after a wild trading move in November over cold weather conditions in the US. Natural gas inventories dwindled to a 15-year low in November.

Commodities performance during 2018

Commodities

Global

India

Gold

-6.5%

6.6%

Silver

-16.2%

-4.7%

Copper

-17.2%

-10.0%

Nickel

-15.1%

-3.2%

Crude

-10.2%

-14.1%

Natural Gas

22.4%

39.7%

 

(From 29 Dec 2017 to 19 Dec 2018)

The global economy expanded at a slower pace as different economic data suggested a fall in GDP numbers in China, Europe and other economies, and this affected metals the most. The most important event that shook the metals market was the trade war between US and China and other nations which has slowed the growth outlook for next year as well. Copper lost almost 17% this year so far while silver, which is mostly used in electronics, lost nearly 16%.

The US slapped tariffs on US$250 billion worth of Chinese products and threatened tariffs on US$267 billion more. China retaliated and set tariffs on US$110 billion worth of US goods, and threatened qualitative measures that would affect US businesses operating in China. It was only in the end of the year that both the countries agreed to suspend trade tariffs for 90 days and engage in discussions to resolve the issue.

Precious metals, gold in particular, remained negative in the first half of 2018, but recovered in Q4. Sentiments may change to the positive early next year as investor interest is seen returning to gold as the end of the Federal Reserve’s tightening cycle approaches. Base metal prices are likely to improve in the first half of 2019 calendar year on account of solid spot market conditions and improvement in the global markets. Strong demand for nickel would make the metal more valuable in the coming year though prices slumped in 2018 mainly due to higher production and lower demand triggered by the US-China tariff war. Nickel in electric vehicle batteries will witness demand growth next year and the current slump provides a reasonable opportunity to accumulate the metal.

In the global oil sector, uncertainties rose in lieu of the US sanctions on Iran oil exports from November 4. Countries trading with Iran were forced to cut oil imports. Subsequently, eight countries were given sanction waivers under certain conditions. Russia, US and Saudi pumped highest oil production to compensate for the Iran deficit. Crude oil lost almost 36 per cent from the highest level of October 2018 with a net loss of 10 per cent in comparison to the previous year. A moderate recovery in oil prices is likely from current levels as OPEC agreed to cut oil production marginally in H1’2019. Oil demand is not expected to recover in early 2019 due to the US-China tariff war.

Volatile trading and panic buying after the US natural gas inventory dropped to a 15-year low are reasons behind the sharp recovery in natural gas prices. The markets were expecting warmer weather conditions during this winter, but were faced with exceptionally cold winters, due to which the inventory started drying up. Though it looks more of a short term seasonal development, natural gas may remain volatile in the early months of 2019 during the winter season.  

The author is the chairman of Abans Group of Companies

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