On Tuesday morning, base metals and other commodities took a hit as the dollar strengthened following US President-elect Donald Trump’s announcement of possible additional tariffs on Chinese goods and imports from Mexico and Canada. This move is aimed at addressing the country’s drug epidemic and has put pressure on base metals, which have been struggling since Trump’s election victory due to fears of a potential trade war and weak demand from China.
Metals – Trump’s Tariff Threats Shake Markets
Precious metals also saw a decline on Monday as reports surfaced of progress in peace talks between Israel and Hezbollah, potentially leading to a ceasefire agreement. Gold prices dropped more than 3% to settle at US$2,625/oz, while silver prices fell by around 3.3% to settle at US$30.3/oz. The easing tensions in the Middle East could reduce the risk premium on precious metals, but other factors like Russia-Ukraine tensions continue to support gold prices.
Meanwhile, steel inventories in major Chinese mills rose for the second consecutive week in mid-November, signaling a recovery in production and demand in the country. This increase in inventories could impact global steel prices and trade dynamics.
Energy – Crude Prices Fall on Middle East Peace Talks
Crude oil prices retreated on Tuesday as reports indicated progress in Israel-Hezbollah peace talks. The potential deal could lower regional supply risks and stabilize oil markets in the short term. However, the US’s plan to impose new tariffs on key energy suppliers like Canada could disrupt global trade and impact long-term economic growth prospects.
Agriculture – Coffee Prices Surge on Supply Concerns
Arabica coffee futures jumped more than 2.5% to a 24-year high on Monday due to worries about tight global supplies. Weather issues in Brazil, the top coffee producer, along with geopolitical tensions, have fueled the rally in coffee prices. The spread between Arabica and Robusta coffee widened significantly, reflecting the supply concerns in key producing regions.
In Europe, favorable weather conditions have accelerated crop activities in major parts, while some regions face challenges that could affect winter crop sowing. Additionally, US export inspections for corn, wheat, and soybeans have shown mixed results, indicating fluctuations in demand and trade patterns.
Analysis and Conclusion
Trump’s tariff threats and geopolitical developments in the Middle East have created uncertainty in commodity markets, impacting prices and trade dynamics. Investors should closely monitor these factors and consider diversifying their portfolios to mitigate risks associated with global events. The potential for trade disruptions and supply shortages could lead to increased volatility in commodity markets, affecting consumer prices and investment returns.
Overall, the current market conditions highlight the interconnectedness of geopolitics, trade policies, and economic fundamentals on commodity prices. It is essential for investors to stay informed and adapt their strategies to navigate the evolving landscape of global markets.