Dwindling global commodity prices.

• Author: Kazmi, Shabbir

Byline: Shabbir Kazmi

Global commodity prices plunged 5.3% on a monthly basis in August, as against 1.5% increase in July. During the month under review global commodity prices dropped in 4 of the last 10 months. The poor performance reflected a sharp drop in energy prices, mostly led by plummeting oil and oil-derivative prices. Agricultural prices logged the steepest decline since March 2017, while base metal prices posted its fourth decline in the last five months. Overall, the price for the three commodity groups was negatively affected by escalating trade tensions between China and the United States and a dismal global economic outlook.

On the flip side, precious metal prices benefited due to investors taking refuge in safe-haven assets, amid the uncertain global economic outlook. While energy and base metal prices are likely to decline, prices for agricultural commodities and precious metals may post significant increase.

Precious Metals

Precious metal prices rose 5.2%MoM in August, accelerating from July's 4.3% increase. As a result, precious metal prices posted the ninth gain in the last 12 months. As in previous months, strong demand for safe-haven assets underpinned higher precious metal prices in August. An uncertain global economic outlook, the prolonged trade war between the two superpowers, widespread geopolitical risks and more accommodative monetary policies by key central banks are behind the recent rally in safe-haven assets, especially gold and silver.

Although, platinum prices are catching up due to this flight to safety, there are also fundamental reasons behind the rally, such as signs that carmakers could start substituting expensive palladium for cheaper platinum. Meanwhile, palladium prices have been recovering in the last few weeks from a sharp decline in early August, which reflected weak auto sales in China and technical selling. Ahead, global growth is seen weakening further, bruised by heightened geopolitical uncertainty and ongoing trade wars, which, coupled with the lower interest rate environment, will continue to spur demand for safe-haven assets.

Energy Products

Energy prices declined 5.9%MoM in August, as against 2.0% rise in July and representing the third decline in four months. Soft demand from China continued to put a lid on coking and thermal coal prices, with both sinking around 10% in the month. Moreover, prices of oil and oil-related products declined in...