Outlook: Commodity price increase set to moderate by year-end after rebound in Q4 2016
The outlook for commodity prices remains positive this year, supported by healthier global macroeconomic dynamics. After an expected 2.6% increase in 2016, global economic activity should experience a mild improvement this year and expand 2.9%. Against this backdrop, commodity prices are expected to increase 3.6% year-on-year in Q4 2017, though this will nevertheless mark a deceleration compared to the price growth in Q4 2016. This year’s rise in prices will be buttressed mainly by higher prices for energy, base metals and agricultural commodities. Prices for precious metals are expected to be the exception.
Prices for most commodities rose in the final quarter of 2016 from the lows registered earlier in that year. In Q4 2016, prices for the commodity complex surveyed in this report increased 13.2% year-on-year, supported by higher energy prices (+21.5% year-on-year), base metals (+15.4% yoy) and precious metals (+10.1% yoy). Conversely, prices for agricultural commodities fell 1.1% annually in Q4 2016.
Energy prices rallied strongly toward the end of 2016 supported mainly by higher crude oil prices, following the agreement of OPEC and non-OPEC producers to limit output in H1 2017. Base metal prices rebounded strongly in Q4 2016, reflecting tightening supply and still strong demand from China. Meanwhile, the strong rally in precious metals in Q3 lost momentum in the final quarter of 2016 as a result of higher U.S. interest rates and a strong U.S. dollar. Prices for agricultural commodities were lower in Q4 2016 relative to Q4 2015, although there were large variations among commodities.
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