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Commodities slump 12% in 2018 on US-China trade worries

1-Jan-2019

The year 2018 was a dismal year for commodities and the New Year could be an equally challenging one. Most commodities slipped in 2018 with the exception of palladium, corn etc.

Reuters/CRB commodity index slumped 12.4% in 2018 marking its first decline since 2015. Crude and Zinc were one of the worst performing commodities with a decline of near 25%.

LMEX, the index for industrial metals, slumped 18% last year marking its first fall since 2015. Copper, aluminum and lead fell by nearly 19% last year while zinc plunged nearly 25%. Industrial metals came under pressure amid slowdown in Chinese economy and concerns about impact of US-China trade war.

Crude was trading on a positive note until October but slumped sharply in last three months to register a +20% decline. Crude came under pressure as higher US and global output and demand uncertainty fuelled concerns about persisting oversupply.

Gold was under pressure until Q3 as Fed's rate hike and safe haven demand kept US dollar supported. Gold however recovered to end the year with a modest 1.5% decline as global risk aversion increased safe haven allure. Silver which witnessed a sluggish year ended with an 8% decline on general weaker trend in industrial metals.

The major factors which weighed on commodities in 2018 were strength in US dollar, slower Chinese economic growth, US-China trade war, Brexit uncertainty and Italy budget crisis.

We have entered the year 2019 on a skeptical note as most events could remain unresolved in the near term. US-China trade talks are progressing however there is still hope that a deal will be reached. The UK is due to leave the European Union on 29 March, 2019 however UK Prime Minister is still struggling to pass the Brexit agreement through British Parliament. Another short term uncertainty is about US government shutdown. The US government has shut functioning partially since Dec.22 due to lack of spending deal. It is unlikely that the shutdown may continue for long however the drag in talks will dent US economic outlook.

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