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World Commodity Forecasts Industrial Raw Materials

  • ID: 2101443
  • Report
  • Region: Global
  • 120 Pages
  • The Economist Intelligence Unit
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The Economist Intelligence Unit's industrial raw materials (IRM) price index is expected to contract by 2.9 % in 2019, reflecting a fall in base metal and crude oil prices. Although global economic growth remains firm, key economies-primarily China-have begun to show signs of softening, and the escalating US-China trade war threatens to weigh on industrial activity and goods trade in both countries. As a result, we now estimate that the IRM price index rose by 2.2% in 2018, down from our previous estimate of 2.5% growth, as the ongoing US-China trade war has sent some base metal prices sliding. Although the imposition of blanket tariffs on imports of base metals, alloys and related products by the US will cause the prices to rise in US markets, we do not expect this to be replicated elsewhere, including in Europe, where most of our price series are based. Significantly, we expect the tariffs to cause metal prices to diverge in the US (where supply shortages and higher import costs will push prices up slightly) and elsewhere (as extra supplies, which would otherwise have gone to the US, will push prices down slightly).

The base metals sub-index is now expected to fall by 3.8% year on year in 2019, as economic headwinds created by trade tensions weigh on activity in the industrial sector. Although some markets have tightened, others, such as steel, are still plagued by oversupply. Production capacity-bolstered by a surge in investment during a decade-long boom in prices in the 2000s-still exceeds demand. Moreover, Chinese producers may look to export a larger percentage of their commodities output as domestic consumption slows (albeit modestly), which will put pressure on global prices. IRM prices are now expected to rise by about 2.5 % in 2020, as falling stockpiles push up prices despite a moderation in economic growth in major developed markets. We expect the US economy to enter a brief cyclical downturn in 2020, which will reduce demand for industrial raw materials.

Average prices in our base metals sub-index rose sharply in the first half of 2018, buoyed by strong economic data in the US and a shift in the Chinese government's strategy to focus on supporting robust GDP growth over debt reduction. However, metal prices sagged in the latter half of the year, as the US and China entered a full-blown trade war. We do not expect prices to recover to their early-2018 highs over the remainder of 2019 as the trade war weighs on business sentiment, particularly in transport, manufacturing and construction. However, policy-led decisions to rein in the supply of some metals in China, together with continued demand from key emerging sectors-including electric vehicles-will help to keep a floor under base metal prices in 2019. In 2020 we expect prices to return to growth as weaker GDP growth in both the US and China-partially as a result of the trade war but also because of domestic factors in each economy-reduces demand.
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World Commodity Forecasts Industrial Raw Materials

Economist Intelligence Unit commodity price index: industrial raw materials
Raw material prices will fall in 2019, driven by base metal and crude oil
Trade barriers will undermine future demand for industrial metals
Strong rubber and cotton prices in recent years are unlikely to persist
Demand-side factors are becoming increasingly important for oil prices
Several producers are struggling to contain political and security risks
Geopolitical tensions continue to pose risks to the forecast

Chinese domestic demand gets a boost from stimulus spending
US demand is being hit by a shortage of primary metal
European aluminium demand growth levels under threat from auto weakness
Global aluminium output stuck in a sideways pattern
Chinese output fails to show meaningful growth
Middle Eastern smelter expansions to drive ex-China growth in 2019
Expansion projects outside of China fall to Rusal
Stocks and prices

China's coal consumption growth will be slight in 2019-20
US coal consumption to fall in 2019-20
Demand for coal continues to contract in Europe
India's coal demand growth will be weaker than earlier in the decade
China's output will grow in 2019-20
US coal output will continue to decline over the forecast period
India's coal output growth will continue to grow in 2019-20
Australia will achieve a marginal increase in output in the near term
Capital spending and improved weather boost Indonesian production
Stocks and prices
Average prices are forecast to decline steadily in 2019-20

China will continue to set global trends in copper consumption
Demand will remain buoyant in India owing to strong economic growth
Copper consumption in the EU will record slower than average growth
Growth in mine production will near its peak in 2020
New projects are set to lift Peru's mine output in 2019 -20
Codelco expands mine investments to maintain production
Projects in Latin America will drive global mine production in 2019-20
Copper production from Grasberg mine will slow significantly in 2019-20
Spot TC's drop early 2019 amid rising demand and supply disruptions
Tighter environmental standards will gradually restrict Chinese smelters
Stocks and prices
Stock flows between LME and SHFE are likely to rise
Price forecast trimmed as economic headwinds mount

US-China trade war has disrupted Chinese supply chains
Policy changes will support long-term demand growth in India
Pakistan's uncertain policy environment constrains demand
Demand in Bangladesh moves in line with developments in the textile sector
Increase in import quotas will prevent faster growth in Chinese output
Adverse weather and trade restrictions have hurt US production in 2018/19
Indian output will be dented by natural factors
Australia's output will drop significantly in 2018/19
Stocks and prices

Crude oil
Trade protectionism will begin to weigh more on oil demand in 2019
Emerging economies will account for much of new oil demand in 2019-20
US light-vehicle sales have passed their peak in this business cycle
Growth in European oil demand will be modest as energy efficiency improves
Chinese oil consumption growth will moderate slightly in 2019-20
Other emerging markets will contribute to rising global oil demand
Shifting US sanctions policy has forced further OPEC restraint
Venezuela and Libya also present important supply risks
The US shale industry has changed the balance of power in the oil market
Stocks and prices
Oil prices will remain volatile in 2019, but within a fairly limited range
US-Iran tensions will remain the key factor driving oil price fluctuations
Moderating global oil demand will keep a lid on price growth

Net retail investment will rise but remain low by historical standards
Gold jewellery purchases are set to stagnate on the back of higher prices
More central banks are set to accumulate gold
Industrial gold use to rise steadily over the forecast period
Overseas investments will distract from domestic production in China
New mining capacity in Australia will lift gold production
Russian output will keep growing as production from the Natalka mine rises
In 2019-20 Canada's production will be strongest among major gold producers
Gold output will continue to decline in South Africa
Producer dehedging will continue in 2019-20
Stocks and prices
Prices are likely to retreat in 2019 before rising gradually in 2020

China's passenger-vehicle sales drop by 13.7% year on year in Q1 2019
Fractious trade relations create headwinds for exporting nations in Asia
Destocking to weigh on EU lead usage as vehicle sales slow in early 2019
Pause in Fed monetary tightening cycle could bolster US vehicle sales
Improving concentrate availability will support Chinese smelter production
Lead-smelting capacity additions are planned outside China
Various mine projects will support a modest rise in global output in 2019-20
Stocks and prices
Average lead price to decline in 2019 owing to slowdown in vehicle sales

Liquefied natural gas
FSRUs are helping to create new markets for LNG
Nuclear restarts will dampen LNG demand in Japan
South Korea's LNG imports will rise in 2019-20
Efforts to reduce coal usage will bolster China's LNG imports
Taiwan's LNG demand is expected to jump in 2019
Reduced import duties and new import terminals will support Indian demand
EU dmeand will see modest recovery in 2019-20
LNG imports to Egypt are declining
The shipping industry could be a rising source of LNG demand
Qatar is investing in order to retain market share in the future
Australian producers face technical and financial constraints
US influence in the global LNG market is rising
LNG exporters welcome easing in US-China trade row
Russia's Yamal project began operating in December 2018
Cameroon becomes the first to have an FSRU in Africa

Natural gas
Nuclear restarts and coal-fired plants in Japan could hit natural gas demand
US demand will increase marginally in 2020
Europe's gas demand will grow modestly, supported by low prices
Nord Stream 2 accuses Denmark of prevarication
Russia's consumption will be limited by its domestic economic performance
Chinese demand will continue to rise strongly, despite higher prices
US production growth will slow down in 2019-20
Russian projects will suffer financing constraints
Iran is looking to Russia and China for investment
Saudi Arabia is planning new capacity
Stocks and prices
Price recovery will be muted owing to high production and stock levels

Natural rubber
Natural rubber faces challenges in the marketplace
Growth in China's natural rubber demand is set to slow sharply
Strong economic growth should support NR usage in India
Producers are trying to use more natural rubber at home
North American usage is being boosted by the oil and mining industries
EU demand will be lacklustre, despite loose monetary policy
Growth in Thailand's production will moderate in 2019-20
Indonesia's plantations are in urgent need of rejuvenation
Vietnam must be drawing down stocks to export
Malaysia's production will revive but will remain at a lower level
India's output should rebound in 2019-20
Cambodia is expanding output
Stocks and prices
Higher oil prices and optimism about US-China trade war boost prices

US demand for nickel will slow down in 2019-20 owing in part to trade tariffs
European Commission's protection measures to have an impact
Supply disruptions will cause consumption growth to decline in China
Environmental policies have weighed on China's nickel consumption in 2017
Ore production in China remains vulnerable to adverse weather
Stocks and prices

Chinese stimulus leads us to revise our forecast upwards
Several factors will weigh on Chinese steel demand growth in 2019-20
A potential US infrastructure programme is being pushed back
EU automotive sales are slowing
Modest GDP growth in Japan will weigh on Asian demand
Demand in the Middle East may struggle
Turkish demand set to plunge
Emerging markets are vulnerable
Chinese output continues to hit record levels
China replaces old capacity with new, more modern capacity
Duties of 25% have been applied to selected US steel imports
US steel output rises after steel tariffs are implemented
North American governments seek to protect steel industries
EU puts a steel safeguard in place
India overtakes Japan as the world's second-largest producer
Output in Ukraine may have been permanently lowered by conflict
Vale dam disaster is a supply shock for the global iron ore industry
Coking coal supply hit by delays, disputes and accidents
Stocks and prices
Steel prices stage a modest recovery

China is ramping up its domestic mining operations
Myanmar's tin mine output is likely to have peaked
Regulations and resource depletion are undermining Indonesia's tin sector
New mines and expansions will boost global tin output in 2020
Some established tin mines are expanding
Stocks and prices
Rising tin availability and economic concerns will weigh on prices

Accelerated investment in China's high-speed railway will support zinc demand
US-China trade relations will dampen consumption in emerging markets
EU vehicle sales may have reached their cyclical peak after they stalled in 2018
The US has until mid-May to decide on Section 232 tariffs on EU vehicles/parts
Dovish Fed seen as preventing a faster drop in US consumer spending
Chinese smelters face environmental restrictions and delays to new capacity
Global zinc availability is set to recover in 2019-20
Producers face stringent safety and environmental protection inspections
Spot TCs end 2018 above US$200/tonne amid rising mine supply
Stocks and prices
Further signififant price gains seen limited by previous off-market stocks

Statistical appendix: industrial raw materials
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