Barclays flags ‘Black Swan threats’ to commodities this year

  • Business
  • Friday, 06 Jan 2017

SINGAPORE: Watch out for the unexpected in commodities markets in 2017. Barclays Plc said raw materials markets from energy to metals face the high likelihood of disruptions, giving a laundry list of possible threats including a default by Venezuela, riots in Chile and a trade war with China.

“The new politics of populism and protectionist trade policies have the potential to disrupt global supply and demand assumptions for various commodities,” analysts including Michael Cohen and Dane Davis wrote in a Jan 5 report. “We see risks skewed to the upside in 2017, based on a high likelihood of disruption risk.”

Commodities advanced in 2016 to post the first annual gain since 2010 as energy markets rebounded and investors reacted to unexpected political events including Donald Trump’s election win in the US and Britain’s vote to quit the European Union. Barclays said that the markets will surprise in some fashion this year, and the bank’s analysis illustrated the key point that politics are likely to matter just as much as economics.

“Commodity market black swan events come in many forms, and the market may take years or an instant to price them in,” the analysts wrote, defining them as extreme events or dynamics that market participants aren’t currently pricing in. “China, Russia, the Middle East and Turkey are likely to surprise the commodity complex in 2017.”

The bank listed more than dozen potential black swan events, dividing them into threats to supply, such as a loss of oil output in Venezuela after a default, and threats to demand, such as an unexpected slowdown in China’s economy. There were also what it termed threats to transit, with risks to the supply routes that are vital to the flow of raw materials, such as the South China Sea.

Relations between the US and Iran came at the head of Barclays’s list, with the bank seeing a potential escalation in rhetoric between the two countries amid Trump’s stated desire to overturn the recent nuclear agreement. — Bloomberg

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