By nature, there is always uncertainty in markets, but as we move into 2019 it is clear that there is an elevated level of uncertainty for commodity markets. This does suggest that we could be in for yet another volatile year. However, here are the ten themes we'll be looking out for in 2019
The Commodities complex entered 2018 on a fairly strong footing, with the Bloomberg Commodities Index peaking in early May. Since then the market has trended lower, with the theme of trade wars weighing on the complex. The other key theme, which has partly offset the bearish sentiment from trade tensions, has been 'sanctions for both the oil and metal markets. These two themes are likely to remain key for commodity markets over 2019, with it still uncertain how exactly they will play out.
For oil, the market will be watching closely on how OPEC+ policy evolves over the year. Whether the group needs to extend its recently agreed deal beyond six months will depend on the impact of US sanctions on Iran, growth in US oil output and the demand outlook for 2019. Recent OPEC numbers suggest that OPEC+ may have to take further action over 2H19. However, intervention from OPEC+ should mean that oil prices trend higher from current levels over 2019.
Turning to metal markets, it is clear that trade talks will be key for how the complex evolves over 2019. Base metal fundamentals are generally constructive, which should be supportive for prices, but the potential for a China slowdown will likely keep the market wary. Sanctions are now somewhat less of a concern, with the US administration announcing plans to lift sanctions against aluminium producer, Rusal.
Although there is still the potential for Congress to try to block the decision over the next 30 days. Finally, crucial for the direction of the metals complex is the outlook for the USD. The strength in 2018 has surprised many, and while it appears as though there could be upside in the USD in the near term, there is growing consensus that the USD will weaken in the latter part of 2019.
In agriculture markets, once again the outlook will depend on trade talks. Recent discussions between China and the US at the G-20 summit were constructive, which has seen China return as a buyer of US soybeans. However, as long as the 25% import tariff on US soybeans remains in place, China is unlikely to return as a significant buyer. This has repercussions on other agriculture markets, with US farmers likely to make a significant switch from soybeans to corn when it comes to 2019 plantings. Meanwhile, for sugar, we believe the lows are behind us with the expectation that prices strengthen over 2019, particularly over the latter part of the year, with a narrowing in the 2018/19 surplus, and expectations that 2019/20 will see the market return to deficit.
We’ll be closely watching the 10 themes below: