IMF cites commodity volatility as potential risk

An October update on the global economy by the Washington-based International Monetary Fund (IMF) indicates some of the extreme downside risks have moderated since this April, but a remaining risk involves commodity price volatility.

“Commodity prices could become more volatile, with increasing climate and geopolitical shocks,” commented Pierre‑Olivier Gourinchas, director of the research department at the IMF. Referring in part to oil and agricultural commodities, Gourinchas adds, “Geo-economic fragmentation has also led to a sharp increase in the dispersion in commodity prices across regions, including critical minerals.”

Commodity volatility took an especially noticeable form early last year, when the price of nickel on the London Metals Exchange (LME) was seemingly manipulated by a handful of trading houses. It caused a sharp spike in the price of nickel considered by most observers as detached from physical supply and demand factors.

More recently, national and regional governments have been designating metals, minerals and other materials as critical or strategic, possibly with an eye on restricting how they are traded across borders or to clear the way for subsidized production.

“The real estate crisis is deepening in China," Gourinchas says of other demand and pricing effects. "Restoring confidence requires prompt action to restructure property developers, preserve financial stability, and address strained local public finances.”

Although most of China’s output of steel, aluminum and copper is consumed internally or shipped to regional trading partners, a tapering off of the nation’s decades-long hunger for metal is likely to affect global pricing.

Just this Tuesday, iron ore futures dipped to six-week lows, according to the Greece-based Hellenic Shipping News, dragged lower by concerns about looming steel production cuts in China and uncertainty over the country’s struggling property sector.

The publication reports other steelmaking ingredients also were under pressure from concerns about Chinese demand, including coking coal and coke.

Ferrous scrap processors and traders have experienced similarly restrained pricing trends in recent months, although Chinese steel mills purchase little scrap from the United States or other scrap-surplus nations.