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Pakistan Commodities: Turbulence prevails as food inflation creeps higher, (AKD Daily, Feb 20, 2020)

Pakistan Commodities: Turbulence prevails as food inflation creeps higher

• On the back of stability in global business and consumer confidence indicators, with some support in global PMI reads, driving revival sentiment in global commodity markets but softening significantly from the Coronavirus outbreak in China and resulting spillovers
• Additional event risks dictating energy markets included heightened geopolitical risk from the US-Iran standoff at the beginning of Jan’19, moderating significantly as the impasse stabilized and the market shifted attention to pricing the spillovers on Chinese industrial and manufacturing demand from the ongoing NCOV-19 outbreak
• The energy complex witnessed significant weakness, with Brent/Arab Light dipping 15.2/10.4%MoM and coal indices slipping as well, particularly from weak Asian demand outlooks. International urea prices were flat MoM, as cheapening input costs globally deplete pricing dynamics across the chemical vertical, while cotton prices rose due to the US-China preliminary trade deal
• Jan’20 FAO food price index averaged 182.5pts, +0.7/11.3% MoM/YoY, marking the 4th consecutive month of increase, led by continued strength in prices of vegetable oils, sugar and, to a lesser extent, cereals and dairy products, fueling (to a varying degree) inflation in major developing markets (India, Brazil), where climate change is impacting supply and alternative demand avenues have propped up prices
• Risks to global economic growth from a slowdown in China and in effect Asia, is likely to keep a lid on commodity prices over the medium term. For energy prices, any OPEC+ deal could stifle supply and limit inventory build ups. Pakistan remains in a sweet-spot in terms of managing its external deficits if commodity prices remains low, while rising food prices are a worrying trend for inflation at home.

AKD Research