Commodity prices have been on a rollercoaster ride in the past few years. Spurred by Chinese demand, they reached a giddy peak in 2011. Oversupply and fears of an emerging-market slowdown led to a long decline until 2016. Then prices were starting to recover, until President Donald Trump began raising American import tariffs in 2018, provoking retaliation from China. A global slowdown, exacerbated by trade war, loomed. But in October Mr Trump suspended some tariff increases. Hopes of a mini-truce were in the air, but last week the American president angered China by signing a bill supporting pro-democracy protesters in Hong Kong. This may have stalled a deal. Commodity prices have followed these twists and turns.
Consider cotton. China is the world’s largest consumer of the fibre and America the biggest exporter. Prices have fallen by a quarter since mid-2018. That partly reflects slowing demand for clothing, as China’s economy has decelerated. But China’s tariff increase of 25% on American imports has also dampened demand, causing prices to fall. Hedge funds have turned bearish and American inventories are forecast to be the highest in a decade.
China has also whacked other American farm goods with tariffs. As a result China is taking a lower share of America’s exports of grains, soyabeans and hides this year than in 2017. (A key demand from the Trump administration in trade talks is that China buy more of its produce. Although China is buying more soyabeans as a result, its share of American exports has yet to recover fully.) Exports of American timber to China have fallen by 40%, and loggers have made cutbacks and layoffs.
The effects of trade war extend beyond America and China. China accounts for three-quarters of Australia’s wool exports. Fearing American tariffs on Chinese-made clothing, it has scaled back purchases. Wool prices are down by a quarter from their record high of September 2018.
Meanwhile metals are increasingly exposed to the trade war. In the face of impending tariffs, markets forecast weaker global demand, and prices have fallen. Mr Trump’s latest round of tariffs announced in August affected metals prices more than previous announcements did. Metals are also more closely correlated with the business cycle than farm goods. Copper, for instance, is considered a bellwether because it is used in housing and construction. In September it reached a two-year low.
In contrast, gold has been glittering amid the uncertainty. Worries about geopolitical tensions and economic growth have boosted demand. The gold price has risen by 15% since the start of the year, to around $1,500 an ounce. In September it reached its highest since spring 2013. But as hopes of a trade truce have risen, the price has lost some of its shine and copper has regained a little lustre.