Inflation woes, hawkish policies fuel commodity worries

By Burhan Sansarlioglu

ISTANBUL (AA) – Demand concerns in the global commodity market deepened last week as inflation fears persist worldwide and central banks seem set for hawkish monetary policy moves.

This marked a downturn from the previous week, when the commodity market was buoyed by the European Central Bank’s historic interest rate hike.

Expectations for hawkish monetary policy decisions have heightened after the US reported an annual inflation rate of 8.3% in August, much higher than estimates.

Annual inflation in the eurozone also hit a historic high of 9.1% in August, spurred by soaring energy prices.

Analysts expect central banks will continue to increase interest rates in a bid to rein in inflation.

The dollar has also appreciated before the US Federal Reserve’s meeting next week.

Markets expect the Fed to hike interest rates by 75 basis points, while an increase of 100 basis points also remains on the cards.

- Gold plummets

The price of gold hit $1,654 per ounce last week, the lowest since April 2020.

It had plunged 2.4% by the end of the week, while the price of palladium dropped 2%.

Silver and platinum were up 3.8% and 2.9%, respectively.

The prices of base metals also dipped last week – copper fell 1.3%, lead 0.9%, aluminum 2.1%, and zinc 4.7%.

Nickel, on the other hand, climbed 8.1%.

- Energy

Brent oil lost 1.2% last week and natural gas traded on the New York Mercantile Exchange fell 2.9%.

Their prices were impacted by China’s continuing pandemic curbs, as well as fears that interest rate hikes in the US and Europe would lead to economic slowdowns.

Forecasts of an increase in crude oil stocks of the US, the world’s largest oil producer and consumer, were also a factor as they created the perception of a dip in demand.

- Agricultural commodities

Wheat and corn traded on the Chicago Mercantile Exchange fell 1.1% and 0.8%, while rice rose 1.4% and soybean 2.6%, respectively.

An increase in estimates of global wheat production compared to the previous month led to the depreciation in wheat prices.

Rice and soybean prices were up after estimates showed a likely decrease in US production.

Cotton lost 5.3% and coffee 5.9% last week, while sugar rose 0.3% and cocoa remained flat.

Cotton prices were impacted by the looming interest rate hikes and concerns about economic growth, which also fueled worries about coffee demand.

Sugar prices were up amid a dry weather spell in Brazil and lower production compared to the previous year.

- Rising economic growth concerns

Concerns about the Fed’s interest rate hike have increased after the US’ August inflation data, which have escalated fears about global economic growth, according to Zafer Ergezen, an expert on commodity markets.

On the drop in wheat prices last week, he said there are mounting concerns about wheat and corn production in Europe “due to increasing air temperatures.”

For corn, Ergezen said the dip in prices last week was a result of oil prices.

* Writing by Gokhan Ergocun