Commodity price outlook remains positive

This time last year, prices for most commodities were sitting near record lows, prompting investor sentiment to sour. Since then, prices have risen across the board and a renewed sense of optimism about demand for most raw materials comes against a better global macroeconomic backdrop and a host of commodity-intensive infrastructure projects. After a 2.6% increase in 2016, global economic activity should experience an improvement this year and expand 2.9%, supported by better developments in both developed and emerging economies. This, along with supply constraints for certain commodities, is driving positive sentiment and the outlook for prices. Following a strong 13.2% year-on-year increase in Q4 2016, prices for the commodity complex surveyed in this report are expected to extend their gains throughout this year and record a 3.8% rise in Q4 2017.

The worst is likely behind us and the fact that many commodity markets are still facing supply-side issues is adding to the optimism. However, to date many producers across most commodities have been largely unable—or unwilling—to react to higher prices, keeping a supply ramp up contained. Q4’s expected increase will mainly reflect higher prices for base metals, energy and agricultural commodities. Conversely, prices for precious metals, led mainly by gold, are projected to fall in year-on-year terms in Q4 2017.

Energy prices rallied strongly in the final quarter of 2016, fueled by the agreement of OPEC and non-OPEC producers to curb oil output in the first half of 2017. Q4’s price gains were extended into the first quarter of this year, but concerns are growing that oil inventories remain high. Base metal prices increased strongly in Q4 2016, reflecting tighter supply and stronger demand. Prices for most industrial minerals continued to rise in Q1, although at a more moderate pace given uncertainty related to politics and policy, particularly policy out of Beijing. Meanwhile, precious metal prices have been under pressure in Q1 2017, following a strong rally in Q4 2016. Gold and silver prices received support from political uncertainty at the beginning of the year, but have corrected lower due to higher prospects of a March U.S. interest rate increase. Meanwhile, agricultural commodity prices fell annually in Q4 2016, but in reality each commodity that composes the aggregate traded on its own fundamentals, yielding different price outcomes.

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Price forecasts and historical data for Energy, Metals and Agricultural Commodities

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