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Tuesday, August 9, 2022

The drop in prices for industrial commodities points to a global recession

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Industrial commodity prices are showing worrying signs pointing to a global recession. So far this year the price of aluminum has slumped by 13%, the the copper 17% and that of steel ingot 18%, suggesting that demand is weakening.

Unlike energy commodities such as oil or natural gas, which continue to record highs due to the upheaval caused by the war in Ukraine and sanctions against Russia, Industrial commodities have been showing significant weakness for several months.

Yesterday, a report by US bank Goldman Sachs downgraded its price forecasts iron. Its experts believe that an economic deterioration in the global economy and China’s troubles in completely getting rid of Covid-19 will eventually lead to price cuts.

Other materials used in various industries such as zincthe tin or the to leadcontinue to accumulate significant declines in 2022.

Average freight costs start to decrease

  • container. The Freightos Baltic Index measures global container shipping rates and calculates spot prices for 40-foot (12-metre) containers on 12 global trade lanes. After this index peaked in September 2021, a slow decline began. So far this year, freight prices have fallen 30%, reflecting weak demand.
  • Baltic Dryness Index. The oldest and most popular freight index is also showing signs of moderation in recent weeks. After hitting its decade high in September 2021, the Baltic Dry Index started falling sharply. In the last six weeks, the index shows a price decline of 30%.

Added to these setbacks are those of other more specific materials. This is the case for wooden planks, widely used in the construction sector in the United States, which have lost 52% in value this year. Or that of pulp, which is down 7% this year.

The only positive thing about all these corrections is that they will help contain inflation. But the bad thing is the origin of the falls. A year ago, inflation started to skyrocket in the United States (after years of low interest rates and huge help to deal with the effects of the 2020 pandemic). The Federal Reserve was slow to react, and by the time it announced rate hikes, it was already too late. Now it has declared war on price increases, even if economic growth is sacrificed. A growing number of economists are forecasting that the US economy will enter a recession by the end of this year or early next year.

Other agricultural commodities such as Palm oil or the Cottonhave also started to correct and accumulate declines of 18% and 8% respectively in 2022.

Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, explains: “Fears of a global recession are now setting the pace for markets, eclipsing even fears of runaway inflation“.

Overall, these price declines in industrial and agricultural commodities are not initially accompanied by a significant trend reversal in oil or natural gas. Experts point out that the markets for these fuels are too changed and conditioned by the future of the war in Ukraine and sanctions.

Source elpais.com

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