Commodities have been battered by the Trump-China trade war. And 2019 doesn't look much better.
- Bloomberg's Commodity Index is down this year with some major commodities taking a hit in 2018.
- Prospects for improvement in 2019 could be slim, unless Chinese growth picks up.
- A strong dollar combined with a slowdown in Chinese growth have ripped into commodity prices this year.
Global commodity markets have had a tough time in 2018, and next year doesn't look much better.
A strong dollar combined with a slowdown in Chinese growth have ripped into commodity prices this year. Similarly, trade-war risks have been front and center and has been the biggest risk to oil this year, according to Peter Helles, commodities strategist at Bank of America.The Bloomberg Commodity Index is down 6.55% this year. Brent crude is down 3.5% for the year but WTI has dropped more than 10% despite OPEC and Russia agreeing to cut production at a December summit.
Important base metals, such as copper, are also off a lot. Iron ore has lost around 6% year-to-date and copper is down 17.5%. Brent crude and copper are both trading down 0.9% Friday as of 12.55 p.m in London (7.55 a.m EST).
Many of the world's oil majors have also, unsurprisingly, struggled: ExxonMobil has seen the biggest drop, 8.8%, with Chevron close behind down 8.3%.
Oil has had a choppy year across the board with "backwardation" - where the spot price is higher than the future price - hitting some of the biggest traders hard in 2018. Major trading house Trafigura posted its lowest annual profit in eight years.
Those slumps have come as investors pulled just over $11 billion from commodity-focused funds over the last six months, according to fund tracker EPFR Global, as reported by the Wall Street Journal. Similarly, the trade war, tightening Federal Reserve monetary policy and a worsening credit cycle could impact the market in 2019, according to Bank of America.
Fears about global growth are also weighing on commodity markets. (Trade figures are usually a good barometer of the need for raw materials.) Analysts at BNP Paribas expect global growth to drop to 3.4% in 2019, from an estimated 3.7% this year.There have been exceptions: Shares of ConocoPhillips has exceeded its peers, rising 17.4% so far in 2018. ConocoPhillips was the first oil major to announce its 2019 capex plans after OPEC's summit December 6 and plans on spending $6.1 billion next year, flat on 2018's figures.
Mining could be another exception, the sector might bounce back in 2019 with miners returning some of their strength this year. JPMorgan is bullish on miners with the sector generally back to much stronger cash flow generation and with better balance sheets than previously.
In particular, rare metals producers working in the nickel, cobalt and lithium space are set to benefit from increased demand for materials for use in smartphones and electric vehicles.