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The global commodities market has experienced a significant downturn, with prices dropping over 20% compared to the same timeframe last year, as indicated by the S&P GSCI Commodities index.
Recent developments have raised concerns regarding trade relations between the United States and China, the world’s two largest economies, which have reignited tensions related to a potential trade war. Additionally, there are emerging indicators that a recession may be on the horizon.
The S&P GSCI index, which monitors various commodities from energy to metals and agriculture, reported a decline of more than 8% since April 2, when U.S. President Donald Trump introduced a series of “reciprocal” tariffs. Although there was a brief uptick in prices following a subsequent reversal of tariff announcements from the White House, the broader trend remains downward.
President Trump has escalated pressures on China by increasing the tariff levy on Chinese imports to 125%. Marko Papic, a macroeconomic and geopolitical analyst at BCA Research, remarked that such a sharp decline in commodity prices serves as a “circuit breaker,” indicating that a global recession may be imminent.
Notably, China, as the leading global consumer of commodities, is expected to be adversely affected by these heightened tariffs, which could curtail its growth trajectory and reduce its consumption of crucial commodities, particularly energy and industrial metals.
Since April 2, energy commodities faced the steepest declines, plummeting approximately 12%, as per S&P Global’s GSCI energy gauge. Industrial metals experienced a nearly 9% drop, while agricultural commodities fell about 5.2%, according to data from S&P Global.
In the oil sector, negative market sentiments align with OPEC+’s recent decision to expedite production increases. Oil prices, especially Brent crude at around $64.78 a barrel and U.S. West Texas Intermediate at approximately $61.77 per barrel, remain considerably low despite some recovery following the tariff announcement reversal. Given China’s pivotal role as the largest crude importer and the dollar’s role in crude trade, the market is particularly sensitive to these escalating tensions.
Goldman Sachs revised its forecasts for oil prices downward, predicting that Brent would average $62 per barrel and WTI would rest at $58 per barrel by year-end.
Rising Fears of Global Recession
The anticipated further decline in commodity prices is amplifying discussions around a potential U.S. recession. JPMorgan projects that the U.S. gross domestic product could contract by 0.3% this year, following a period of robust growth.
According to strategists at ING, the downturn in crude oil prices since early April reflects an increasing market belief that recession risks are rising. Sabrin Chowdhury, who leads commodities research at Fitch Solutions’ BMI, echoed this sentiment, noting that deteriorating market perceptions are driven by geopolitical tensions and escalating trade disputes. She estimates the probability of a U.S. recession at over 50%.
Moreover, industrial metals are facing increased challenges as fears of recession intensify alongside a struggling property market in China. Copper, a key economic indicator due to its applications across various industries, is currently trading at $8,380 per ton on the NYMEX, having suffered a more than 16% decrease since April 2, according to FactSet data.
As China, the world’s largest copper consumer, faces economic scrutiny, the demand for copper and other industrial metals is anticipated to diminish, especially with U.S. growth expected to decelerate amid tariff pressures. Ewa Manthey, a commodities strategist at ING, highlighted that stagnant growth in the U.S. and China’s economic struggles will likely weaken demand for industrial metals.
Goldman Sachs has also adjusted its copper price estimates, anticipating continued surpluses of the metal and lackluster GDP growth in the U.S. They forecast a detrimental impact on copper demand beyond China’s borders, suggesting the potential for prices to drop further to levels last seen during the trade war and the early COVID-19 pandemic—projecting ranges of $6,500 to $5,900 per ton, respectively.
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