Barron\'s - 02.09.2019

September 2, 2019 BARRON’S M9

Commodities Corner

The Biggest Losers in August

By Myra P. Saefong

COMMODITIES ENDED AUGUST WITH A SECOND STRAIGHT MONTHLY LOSS, AS

uncertainty surrounding the U.S.-China trade war feeds expectations of a

global economic slowdown—and demand for raw materials.

TheS&PGSCIindex,whichtracks24commoditiesacrossfivesectors,with

energyitslargestweighting,declinedbymorethan4%inAugust.Itfell0.7%

inJuly.TheBloombergCommodityIndex,whichtracks23commodities,with

gold the heaviest-weighted, lost more than 2% in August.

“Theslowdowninglobalgrowthalongwiththeescalatingtradewarcaused

the poor performance,” says Chris Gaffney, president of world markets at

TIAABank.Itwasn’tasurpriseasdatapointedtotheslowdown,and“neither

side seems willing to give in the U.S./China trade war,” he says.

Ironorewasthebiggestloserforthemonth,withthePlattsIODEX,which

reflects the spot price of 62% iron-ore fines delivered to China, down about

27%.Futurespricesforgasolinelost18%;leanhogsweredownmorethan10%;

cornwasalsoabout10%lower,andethanolwasdownnearly7%byFriday’s

settlements.

“Iron ore has been among the most volatile of all commodities this year,”

saysJosephInnace,S&PGlobalPlatts’newsdirectorforMetalsAmericas.The

Platts IODEX rose 75% to a July peak at $126.35 per dry metric ton, from

$72.35onJan.2.TherisewasfueledbydemandfromChinaandaglobalshort-

agestemmingfromtheValedam-burstdisasterinBrazilinJanuary,hesays.

Prices have dropped 32% from that peak to $85.85 on Friday.

Iron-oresupply,however,hasgraduallyreturned,saysInnace.Thatcomes

atatimewhenChina’snorthernsteelmillsmayreduceinventoriesbecauseof

possiblepollution-control-relatedproductioncutsinSeptember,Innacesays.

Thetradewarhasbeenthecommonfactoramongcommoditiesingeneral.

“The back and forth escalation of U.S.-China trade

tariffs...isweighingonpricesofcyclicalcommodities,”

likeoil,gasoline,andcopper,saysRobHaworth,senior

investment strategist at U.S. Bank Wealth Manage-

ment.Industrialmetalswillprobablycontinuetobearthebruntofthedeclines,

reflectingthedentthattariffsarelikelytomakeinChina’seconomicoutput,he

says. In August, U.S. oil futures fell by over 6%. Copper lost more than 4%.

GrainstookahitinAugust,withcornleadingthelossesinthesector,after

a 15% climb in the first half of the year. Corn prices fell after a June report

fromtheU.S.DepartmentofAgricultureshowedhigherestimatesforplanted

acreage, says Sal Gilbertie, president at Teucrium Trading. Many farmers

plantedcornlateintheseasoninsteadofsoybeans,withthedecision“undoubt-

edlyinfluenced”bythetradewarwithChina,whichisthelargestU.S.buyer

ofsoybeans,hesays.Still,heexpectstheworldtousemorecornthisyearthan

it produces, for the second year in a row.

EthanolfuturessawanAugustdeclineaftertheU.S.EnvironmentalProtec-

tionAgencygranted31small-refineryexemptionsforthe2018complianceyear,

saysBrianMilne,editor,productmanageratagricultureandenergyanalysis

providerDTN.Apercentageofpetroleum-basedroad-transportationfuelmust

be offset with a qualified renewable fuel, and the exemptions led to reduced

demandforethanol,hesays.Severalproducersplantocurtailorshutproduc-

tion plants, which will “boost ethanol prices in the future,” says Milne.

The outlook remains downbeat. “We expect commodities to continue to

remainunderpressureuntilweseeeitherade-escalationintradehostilities

or a pickup in global growth expectations,” TIAA Bank’s Gaffney says.

Commodity Indexes,

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