Here's why JPMorgan and Barclays think miners could be a surprise winner in 2019 after a battering by the Trump-China trade war

  • Bloomberg’s Commodity Index is down this year with some major commodities taking a hit in 2018.
  • Prospects for improvement in 2019 could be slim, but miners could be one to watch.
  • A strong dollar combined with a slowdown in Chinese growth have ripped into commodity prices this year.

Global commodity markets have had a tough time in 2018, and next year doesn’t look much better.

A strong dollar combined with a slowdown in Chinese growth have ripped into commodity prices this year. Similarly, trade-war risks have been front and center and has been the biggest risk to oil this year, according to Peter Helles, commodities strategist at Bank of America.

But miners could be the exception next year, according to JPMorgan and Barclays.

The sector might bounce back in 2019 with miners returning some of their strength this year. JPMorgan is bullish on miners with the sector generally back to much stronger cash flow generation and with better balance sheets than previously.

“All in all, we believe that China may not be such a key source of downside risk for the markets next year. As a result, we closed the short on EM exposure in our outlook two weeks ago and tactically added to Mining as well, as a hedge against a potentially more resilient than expected Chinese economy,” said Emmanuel Cau, Head of European Equity Strategy at Barclays, said at a briefing on Friday.

In particular, rare metals producers working in the nickel, cobalt and lithium space are set to benefit from increased demand for materials for use in smartphones and electric vehicles.

The Bloomberg Commodity Index is down 6.55% this year and it doesn’t look like 2019 will be any kinder to commodities.

Futures markets like Brent crude is down 3.5% for the year while WTI has dropped more than 10% despite OPEC and Russia agreeing to cut production at a December summit.

Important base metals, such as copper, are also off a lot. Iron ore has lost around 6% year-to-date and copper is down 17.5%. Brent crude is down 1.4% as of 4.20 p.m in London (11.20 a.m EST).

Many of the world’s oil majors have also, unsurprisingly, struggled: ExxonMobil has seen the biggest drop, 8.8%, with Chevron close behind down 8.3%.

Oil has had a choppy year across the board in 2018 with “backwardation” – where the spot price is higher than the future price – hitting some of the biggest traders hard in 2018. Major trading house Trafigura posted its lowest annual profit in eight years.

Those slumps have come as investors pulled just over $US11 billion from commodity-focused funds over the last six months, according to fund tracker EPFR Global, as reported by the Wall Street Journal. Similarly, the trade war, tightening Federal Reserve monetary policy and a worsening credit cycle could impact the market in 2019, according to Bank of America.

Fears about global growth are also weighing on commodity markets. (Trade figures are usually a good barometer of the need for raw materials.) Analysts at BNP Paribas expect global growth to drop to 3.4% in 2019, from an estimated 3.7% this year.

There have been exceptions: Shares of ConocoPhillips has exceeded its peers, rising 17.4% so far in 2018. ConocoPhillips was the first oil major to announce its 2019 capex plans after OPEC’s summit December 6 and plans on spending $US6.1 billion next year, flat on 2018’s figures.

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