How the US-China trade war is disrupting commodity markets

The World Bank has projected a 2.6% decline in agricultural prices this year due to ample stocks, but expects a 1.7% rise in 2020 with expected cuts in US crop plantings and rising energy and fertilizer costs. The ongoing trade war between the United States and China is causing disruptions in global commodity markets, affecting sentiments across various sectors. Damilola Akinbami, Head of Research at Financial Derivatives, shed light on the impact of these tensions on commodities during a recent interview on CNBC Africa. A key driver of market uncertainty is the perception of a looming global economic slowdown, prompting fluctuations in prices of commodities like oil, wheat, and corn. The US-China trade tensions have led to fluctuations in oil prices, hovering around $60 per barrel, influenced by factors such as trade sanctions on Iranian oil and decreased Chinese imports from the US. Wheat prices are also affected by ample supply from regions like the Black Sea and Europe, while corn prices are now showing signs of recovery due to potential weather constraints affecting production. In terms of cocoa, Ghana's plan to increase farmgate prices by 5% for the upcoming season could impact cocoa prices significantly. The interview highlighted the challenges in predicting future trends amidst ongoing trade tensions. The uncertainty surrounding the US-China trade war makes it difficult to forecast market movements accurately, with implications for major commodities like oil. China's reduced purchases of US oil and LNG, in favor of suppliers like Saudi Arabia, are altering market dynamics. The interview also touched on the impact of trade tensions on domestic commodities in Nigeria. The harvest season has led to declines in prices of items like pepper, tomatoes, and yam, emphasizing the seasonal nature of the market. However, potential forex policies on food imports could trigger imported food inflation, impacting the overall food index. Despite imported food items forming a small part of the total food basket, Nigeria's import-dependent economy is sensitive to exchange rate fluctuations. Concerns about smuggling of goods due to porous borders were also discussed, raising questions about enforcement mechanisms to counter illicit trade practices. As the global commodities market navigates through the uncertainties brought about by the US-China trade war, stakeholders are closely monitoring developments in key sectors like oil and agriculture. Market players are bracing for continued volatility and seeking clarity on the future trajectory of commodity prices amid geopolitical tensions.