Commodity markets slipped Thursday, extending their weakness this year amid concerns about the prospects for the global economy and U.S.-China tensions.
The price of industrial metals fell, led by nickel. The stainless-steel ingredient dropped 2.6% to $13,990 a metric ton in London. Copper, which is particularly sensitive to investors’ sentiment about Chinese growth prospects, slipped 1% to $5,889 a ton, erasing the tepid gains it had made so far this year. Futures for Brent crude, the global benchmark for oil, were flat at $63.28 a barrel.
The latest concerns stem from a bill President Trump signed in support of Hong Kong protesters, which has prompted criticism from China.
The new U.S. legislation—which calls for the State Department to annually review whether Hong Kong is sufficiently autonomous from China to be eligible for certain customs and immigration purposes—is widely viewed as a rebuke to Beijing. China has opposed the bill’s signing and threatened countermeasures if the U.S. doesn’t change course. That has raised worries that tensions over Hong Kong could spill over into trade negotiations between the U.S. and China, and disrupt efforts to reach a preliminary accord.
“Even a mini-deal seems to be difficult, especially after scenes such as yesterday when President Trump signed the Hong Kong bill,” said Nicolas Robin, who manages investments in energy, metals and agriculture for Columbia Threadneedle Investments in London. “This is something that’s not going to put the Chinese government in the right mood to make concessions.”
Industrial-metal prices were under pressure even before tensions emerged over Hong Kong, highlighting concerns about the pace of global growth among investors.
The view from within the global commodities market is in contrast with that of the U.S. stock market, which has climbed to a series of all-time highs in recent weeks as concerns about the trade deal and a potential U.S. economic recession waned.
The divergence between commodities and stocks partly reflects the differing fortunes of the American economy, in comparison to that of China and other nations.
U.S. gross domestic product rose at a 2.1% annual rate in the third quarter, the Commerce Department said Wednesday, suggesting the expansion remained on solid ground heading into the final stretch of 2019.
A decline in industrial profits, meanwhile, showed China is on a weaker footing, darkening the outlook for commodity demand as the country is the world’s biggest consumer of raw materials.
“Industrial metals are only partly exposed to demand from the U.S., which has outperformed for much of 2019,” said Susan Bates, a commodity strategist at Morgan Stanley. “Metals demand in the rest of the world has been stagnant or falling.”
Whereas the S&P 500 has advanced 26% in 2019, copper is slightly cheaper than it was at the start of the year and several other metals have dropped in recent weeks. The price of nickel has slumped 16% in November, and tumbled by a third since early September, driven by slowing demand for the metal at stainless-steel producers.
Many investors remain unwilling to bet that the U.S. and China will complete a trade agreement, even after Mr. Trump said on Tuesday that the two countries were in the “final throes of a very important deal.”
“We don’t have a discretionary investor who’s trading the likelihood of a phase-one deal because of the uncertainty,” said Tracey Allen, a strategist at J.P. Morgan. She expects agricultural prices to jump if a deal is signed.
An eventual agreement could involve large purchases of American farm produce, lifting demand at a time when poor growing conditions could crimp supplies. But soybean futures prices have fallen 5.4% in November to $8.82 a bushel in Chicago, while corn has slipped 3.7% to $3.76 a bushel.
Oil has been more resilient than metals and soybeans, but faces a different challenge: a glut of supply.
Prices fell this week after data from the Energy Information Administration showed an increase in U.S. crude stockpiles. Ample supplies will weigh on oil at the start of 2020, according to a poll of 11 banks by The Wall Street Journal. On average, the banks expect Brent crude to trade at $60.68 a barrel in the first quarter, roughly 3.5% below current prices.
The Organization of the Petroleum Exporting Countries and its allies are unwilling to support oil prices by making deeper output cuts, said Harry Tchilinguirian, head of commodity research at BNP Paribas. “Even if the U.S. and China sign a phase-one trade deal, we see a high probability of a correction in oil prices in the first quarter.”
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