World: Commodities – EIU’s latest assumptions

Commodity prices are drifting, waiting for signs of recovery in demand

Commodity prices were looking for direction during the fourth quarter of 2012 – waiting for signs of a pick-up in China’s growth as well as moving cautiously ahead of the fiscal negotiations in the US and the risk of a sharp tightening of US fiscal policy. Agricultural prices generally weakened, at least compared with the third quarter, when prices rose sharply in response to adverse weather in many key producing countries, in particular drought conditions in the US Corn Belt. The prospect of the arrival of South American crops, and more favourable growing conditions in that region, led maize and soybean prices to fall back, although they remain at historic highs.

Commodity prices responded strongly to the fiscal deal reached in Congress on January 1st 2013 but, perhaps in recognition of the fact that further negotiations on the debt ceiling are required, the relief does not seem to have sparked a sustained rally. Signs of stronger growth in China will be positive for the energy and metals markets but stocks of metals generally are high and mine supply is rising, which will dampen the scope for price rises.

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