Outlook: Will the commodity price rally last? 

Most commodity prices continued to increase at the beginning of Q4 after rallying for two consecutive quarters, despite the uncertainty in the global financial markets. The increase in prices in Q4 is mainly the result of two factors: first, supply shocks related to OPEC’s production agreement, mine closures and a drop in inventories for most raw materials; and second, a gradual improvement in demand stemming from greater confidence in the Chinese economy and improving global industrial production. In this month’s survey, analysts polled by FocusEconomics expect commodities prices to increase 9.0% in Q4 2016 from the same period last year, which contrasts the 26.7% plunge registered in Q4 2015.

Looking at the individual commodity groups, the outlook for energy prices, led mainly by crude oil, coal and natural gas, remains positive as a result of a gradual market rebalancing and expectations that OPEC will limit production. Base metal prices are expected to rebound in the final quarter of 2016 and continue rising throughout next year due to faster-than-expected mine closures. Prices for precious metals are predicted to stay high at the end of this year, as investment demand is seen remaining strong due to uncertainty regarding monetary policy and rising political and geopolitical risks. Finally, agricultural commodities prices are expected to rebound strongly in Q4 and remain on a gradual recovery path as many commodities in this sub-group remain subject to higher energy costs and supply conditions.

Looking forward, forecasters see a more solid outlook for commodity prices next year supported by brighter prospects for prices of energy and base metal commodities. The Consensus view among commodities experts is that demand will strengthen next year and prices will rise 5.4% annually in Q4 2017.

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