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Trade disputes to further intensify, fueling volatility, risks for commodities

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Trade disputes to further intensify, fueling volatility, risks for commodities

The impact of the ongoing trade dispute between the U.S. and China has yet to surface, various speakers at this year's LME Seminar indicated. Expectations are that the fallout between the world's two largest economies will further intensify in the coming months, posing obvious downside risks to commodities markets. However, China is tipped to take sufficient measures to shield and strengthen its economy, implying ongoing solid demand for most metals.

"The good news for our industry is that fundamental drivers of growth are intact and robust," Trafigura Beheer BV CEO Jeremy Weir told delegates. "What matters overall is growth and demand. And right now, we are in good shape."

According to Weir, China still forms a broad and solid base for consumption, leaving the foundations for growth intact.

Brian Coulton, chief economist at Fitch Ratings, predicted that global growth and commodity markets will gradually slow down, particularly driven by desynchronizing global growth.

"We have peak global growth conditions at the moment," Coulton said.

There is an increasing disconnect between the U.S. economy and those in Europe and China, he said. While U.S. markets continue to strengthen, boosting the U.S. dollar, the EU and China are beginning to slow.

"We see more of this to come," Coulton said. "The dollar strength is not going to disappear any time soon."

He also outlined expectations of more volatility in global markets and further hikes in U.S. interest rates in the long term as the ongoing trade disputes are unlikely to influence the U.S. Federal Reserve's monetary policy.

China is actively seeking to offset the impact of U.S. tariffs, among other measures, by de-risking its supply chains by shifting away from U.S. suppliers, according to James Kynge, global China editor at the Financial Times.

Kynge said Chinese producers are generally far less dependent on U.S. products than vice versa, leading him to believe that President Donald Trump's tariffs will hurt U.S. companies in the long run.

Other important factors in the context of China's economic health are local government investment and an "extremely strong" property market, both of which should be well positioned to absorb trade woes, Kynge said.

Nonetheless, risks and uncertainty are rising in the current environment, and that is set to include commodities markets, Bank of America Merrill Lynch's Michael Widmer said.

"There are too many risks out there to be really bullish on commodities over the next 12 to 18 months," Widmer said.