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Commodities Outlook: A “Goldilocks” Scenario for Global Growth

Our base case is for commodity pricing on average to be flat to down moderately in 2013 with some pickup moving into 2014 – but beware the Snake!

Commodity prices, especially for gasoline, can affect consumer spending, and also have a profound effect on operations and supply costs to many industries (think diesel fuel and trucking, or silver and electronics). Getting a better handle on where commodity prices may be heading can help mid-market business hedge against potential risks and gain a competitive edge by planning for various what-if scenarios affecting their supply chain. 

Key Takeaways
  • Average commodity pricing flat to down moderately in 2013 with some pickup moving into 2014 – but beware of the Snake!

A GE Capital, Americas Industry Research Monitor, “Commodities Outlook,” offers in-depth analysis of key trends that will influence pricing. In spite of recent volatility, our expectation for commodity prices is to remain relatively stable on average to slightly declining in 2013 with a modest upward bias heading into 2014. Here are some highlights from the report. 

“The expansion of monetary policy by the fed, and by other major central banks, is unprecedented, and the degree of corresponding imbalances should not be underestimated.”
Outlook: Stable--with Potential for “Tail” Risks

Overall, prices are expected to remain at high enough levels to profit commodity-producing nations without jeopardizing global growth. This “Goldilocks” scenario should continue for the next year.

Our analysts caution, however, that a pronounced slowdown in China could send commodity prices swiftly downward. On the flip side, Middle Eastern conflict resulting in a disruption of oil supplies, or severe weather affecting agriculture could lead to price spikes.

Commodities

Other key factors affecting commodity prices:

Inflation. “The expansion of monetary policy by the Fed, and by other major central banks, is unprecedented, and the degree of corresponding imbalances should not be underestimated,” says Marco Annunziata, GE Chief Economist and Executive Director of Global Market Insight. Higher inflation resulting from such expansion should prove supportive for commodities, but will likely cause significant swings in gold, which is particularly sensitive to inflation.

Housing. “We are at the beginning stage of a moderate recovery,” says Annunziata. “We expect that the recovery will pick up momentum over the course of the year... In 2014, we see the potential for a more substantial acceleration.”

Troubles in Europe. “The outlook remains weak...for the next couple of years, the only positive growth will be recorded in Germany and the Nordics, with France and southern Europe in the doldrums,” says Annunziata. “This unfortunately will continue to be a brake on growth for parts of Central and Eastern Europe as well.” 

A Commodity Thermometer: What’s Hot and What’s Not

In the aggregate, commodity prices may decline in 2013 by approximately 5% -- but not across the board, says Dave Rusate, GE’s Managing Director, Foreign Exchange & Commodities. Some commodities may rise in price, others may fall, and we must grid ourselves for growing volatility, in part due to the rising popularity and impact of newer trading vehicles, such as exchange-traded funds. “ETFs, as well as hedge funds and speculative money could increase volatility in both directions,” says Rusate.

Rusate offers a “temperature reading” for commodity prices throughout 2013 in the full report..

For the Full Report

For the full GE spring 2013 Industry Research Monitor, “Commodities Outlook,” with additional commentary, projections, and specifics on individual commodities, click here.