Expectations that central banks will continue to increase interest rates raised recession concerns, causing selling pressure in the commodity market last week. Despite a positive trend in agriculture and energy commodities, the declines in precious metals and base metals affected the commodity market.
After the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE) continued their “hawk” stances despite reducing the rate of tightening, resulting in a generally negative course in the commodity markets last week with increasing recession concerns.
At the last meeting of the year, the Fed Open Market Committee (FOMC) increased the policy rate by 50 basis points to the range of 4.25-4.50 percent, the highest level in 15 years. Although the bank slows down the rate of increase, the projections are; It revealed that Fed members’ forecasts for the federal funds rate rose from 4.6 percent to 5.1 percent for the end of 2023, and from 3.9 percent to 4.1 percent for 2024.
In a statement after the meeting, Fed Chairman Jerome Powell said that clearer evidence of a decline in inflation should be seen. Emphasizing that 50 basis points in the policy rate has historically been a great increase, Powell said, “We still have a long way to go. After today, it is not important how fast we increase interest rates, but how far we increase them and how long we stay there.”
The ECB also raised three key policy rates by 50 basis points to the highest level since 2008. The Bank also pointed out that as of March 2023, the asset purchase program will be reduced at a measured and predictable pace.
“We expect to raise interest rates significantly more, as inflation is still very high and is expected to remain high (in the future),” ECB President Christine Lagarde said at a press conference after the decision.
BoE, which increased the policy rate by 50 basis points to 3.50 percent, the highest level since October 2008, stated that it would respond strongly in case of permanent inflation pressure.
Signs of weakening economic activity in China also weighed on commodity prices last week. Industrial production in China increased by only 2.2 percent in November compared to the same period last year. Economists had expected production to grow by 3.6 percent. Industrial production in the country increased by 5 percent in October. Retail sales in China, on the other hand, decreased by 5.9 percent in November compared to the same period last year.
Demand for metals has decreased
Last week, gold decreased by 0.2 percent, silver by 1 percent and platinum by 3.1 percent, while palladium, which saw its lowest level in a year at $ 1,701.50, lost value by 12.2 percent.
With the projections of Fed members for the upcoming period and the statements of Fed Chairman Powell being evaluated as “hawks”, the demand for dollars increased, while gold prices were also suppressed. Analysts said gold performed negatively in the week, signaling that the Fed will continue its aggressive monetary tightening path longer than expected.
Copper finished the week down 1.7 percent, lead 2.7 percent, aluminum 3.3 percent, nickel 2.4 percent and zinc 4.4 percent.
While the demand for metals decreased due to rising energy costs, aluminum prices decreased with the news that aluminum production in China increased.
Last week, Brent oil gained 3.5 percent and natural gas traded on the New York Mercantile Exchange rose 5.9 percent.
Uncertainty regarding the oil supply in the Keystone pipeline was effective in the rise in the Brent oil price.
The Keystone pipeline, which carries more than 600,000 barrels of oil daily from Canada to the United States, was halted due to a leak. This situation caused supply concerns in the markets and supported prices upwards.
As a new sign of the relaxation of Kovid-19 restrictions in China, the abolition of the “mobile travel card” application, which is mandatory for domestic travel, also strengthened the expectations that the demand for oil in the country will increase, affecting prices upwards.
Meanwhile, the International Energy Agency (IEA) announced that global oil production decreased by 190 thousand barrels per day in November compared to the previous month, to 101 million 730 thousand barrels.
Natural gas prices also rose with predictions of lower temperatures.
Sugar finished the week with an increase of 1.9 percent.
A positive trend was observed in agricultural commodities last week. The decrease in production forecasts and the increase in US export data were among the important factors that positively affected agricultural commodities last week.
Wheat traded on the Chicago Mercantile Exchange rose 2.6 percent and corn rose 1.5 percent, while rice prices fell 0.2 percent. Soybean prices, on the other hand, followed a flat course.
Last week, coffee increased by 4 percent and cotton by 1.3 percent, while cocoa decreased by 1.2 percent.
Sugar, which saw its highest level since February 2017 with $0.2073, finished the week with an increase of 1.9 percent.
The decline in production expectations in Brazil and Colombia caused a rise in coffee prices.
The supply problems in Brazil also supported the rise in sugar prices.