There are signs in commodity markets consistent with nearing a top of the cycle. While there remains some near-term upside risks, overall economists at Westpac expect prices to find a peak in 2021 and to then start correcting through 2022.
Demand growth to decelerate in 2022
“Westpac is looking for demand growth to decelerate in 2022. Some of the signs that suggest this will be so are: 1. In regards to China, credit growth is levelling out, policy around property is tightening, while infrastructure FAI is slowing. June data supports this view. 2. Outside China, support from restocking will come to an end and pent-up demand will fade as consumer spending shifts away from goods and towards services. On current projections the supply of most commodities is set to increase in 2022, just as demand growth moderates, pushing markets back to balance.”
“For crude oil, the agreement OPEC+ reached in July went a long way towards removing supply uncertainty from oil markets. For demand, covid is again in focus, although not to the degree that we have seen previously. It would appear that as long as the UK mortality rate remains close to zero the markets will consider the possibility of large-scale global lockdowns as being negligible.”
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