In the September commentary, Straits Financial's Chief Economist suggested that commodity prices still have the potential to decline further in the future.

Previously, Straits Financial had expressed a bearish outlook on the overall commodity price trend (excluding gold). Although rising expectations of Fed rate cuts and a weaker US dollar have spurred a slight recovery in commodity prices, analysts believe commodity prices still have room to decline further.

First, experts believe that general consumer demand in Europe and the US will gradually slow. Although experts do not believe the US economy will fall into a recession, its consumption rate is slowing as it faces more obstacles due to a slowdown in fiscal spending, employment, and wage growth. Additionally, with the upcoming elections and the large divide between the two parties, it is unlikely that the US government will introduce more expansive fiscal policies to further stimulate the economy this year.

Second, domestic demand in China is recovering more slowly than expected. As domestic real estate prices continue to fall, along with a slumping domestic stock market and slowing household income growth, domestic demand is unlikely to improve significantly without strong domestic fiscal stimulus policies. At the same time, domestic exports face a certain slowdown risk in the future, possibly due to weakening demand in Europe and the US.

On the other hand, China's rapid export growth, particularly in clean energy and automotive products, has caused increasing political pressure in many OECD countries to impose restrictions on China's exports in the future. Clean energy and automobiles face a significant overcapacity issue in China. Therefore, if more trade protectionist restrictions are imposed, it will certainly exacerbate domestic overcapacity and ultimately lead to a slowdown in domestic investment and production growth. Clean energy and automobiles are the most important additional drivers supporting domestic industrial commodity consumption growth to overcome the real estate market's downturn over the past three years.

At the same time, Straits Financial observed that due to the higher prices and profits of upstream industrial goods over the past two years, more investments have been poured into the upstream commodity production sector. According to Straits Financial's statistics, the key industries with rapid investment growth (>10%) from January to July this year were primarily upstream commodity production sectors such as agriculture, forestry, basic metals, iron, and coal. This means that when the entire domestic resource industry potentially faces a slowdown in demand growth, it could also face an increase in supply in the future. Therefore, unless large-scale consumption stimulus policies are rolled out again domestically or internationally, Straits Financial expects the general weakening trend of industrial commodity prices to continue this year.

Source: Straits Financial