- What were the key trends in the market in 2017?
- Were there any surprises that affected the commodity that the market wasn’t expecting?
- What was the biggest news in the industry this year?
- What key trends do you predict for the market in 2018?
- Are there any concerns about the market for next year?
- What factors should investors be aware of?
Ricard Torné, Head of Economic Research
What were the key trends in the oil market in 2017?
Oil prices were broadly stable at the start of the year as markets adopted a wait-and-see approach to assess the impact the oil production cut deal between Russia and key OPEC players would have on prices. In addition, the global economic recovery seemed uncertain after Donald Trump was elected and the election cycle had just begun in Europe, where Eurosceptic parties were poised to record solid gains. There was also significant uncertainty regarding the health of the Chinese economy at that time.
These fears became exacerbated in Q2. Investors were concerned about the extent to which participants would comply with the oil production cut deal, and were also closely watching as output rose in Nigeria and Libya—the two OPEC members exempt from the agreement—-and production rose in Canada and the United States.
Various factors helped to turn the tide in Q3. The oil cap agreement led by Russia and Saudi Arabia proved more successful than expected with participating countries sticking to their quotas, thereby limiting global supply.
From the demand side, concerns about rising protectionist policies started to fade, while growth in developed economies and China was surprisingly robust, boosting demand for the black gold. Recent speculation about the oil cut deal being extended well into 2018 prior to the decision and mounting geopolitical risks in the Middle East have contributed to supporting crude prices. Oil prices have soared since October on strong fundamentals, hitting levels last seen over two-and-a-half years ago.
Were there any surprises that affected oil that the market wasn’t expecting?
The markets had not factored in the true strength of the global economy enough, nor did they anticipate that Russia and the OPEC countries would comply with the production cut agreement reached in November 2016.
What was the biggest news in the oil industry this year?
The biggest news in the industry this year was the effectiveness of the oil deal in reducing global supply, a reduction in political risks, particularly in Europe and the United States, and resilient global growth.
Crude Oil Outlook 2018
What key trends do you predict for the oil market in 2018? Are there any concerns about the market or factors that investors should be aware of?
The global economic recovery, rising geopolitical tensions and the OPEC-led oil deal will lead developments in the oil market.
Although the global economic outlook for 2018 appears to be healthy, there are some risks that could derail the ongoing positive trend. A tighter monetary policy in the United States, the possibility of a sharp slowdown in China and many important elections around the world (including in Brazil, Italy and Mexico) all threaten to slow the global economic recovery and therefore impact demand for oil.
From the supply side, geopolitical risks are the key events to watch. Growing political tension between Iran and Saudi Arabia could erupt in severe supply disruptions. Large fiscal imbalances among some key crude suppliers could lead them to deviate from the deal, adding more crude into the markets and pushing down prices. Moreover, along with the possibility of higher oil production by OPEC and Russia, Canada and the United States will likely ramp up production next year, which will be more evident towards the end of the year.
Ricard Torné, Head of Economic Research
What were the key trends in the tin market in 2017?
Tin prices were shut out of the base metals price rally and were broadly stable throughout 2017, although we saw a slight downward trend. While prices stabilized, they prices remained at historically high levels. Developments in the tin market were dominated by China, the world’s largest producer and consumer of tin, and low stocks of tin in LME.
Were there any surprises that affected tin that the market wasn’t expecting?
The unexpected removal of a 10% export duty in China at the start of the year led most developments in the tin market this year as Chinese companies started to flood the international markets.
What was the biggest news in the tin industry this year?
China’s decision to scrap the 10% export duty on refined tin products in January added expected downward pressure on prices. Resilient demand from the electronics sector, however, supported tin prices to some extent. One factor that shored up tin prices in the second half of the year was China’ decision to enforce a stricter environmental regulation.
Tin Outlook 2018
What key trends do you predict for the tin market in 2018? Are there any concerns about the market or factors that investors should be aware of?
China will continue to dominate the headlines in the tin market. Stricter environmental regulation could reduce tin output. Moreover, the tin market will remain in a supply deficit. Despite the shortfall, prices will increase marginally as tin has been suffering from a chronic deficit, which has already been pencilled in by the market. Moreover, stocks in Shanghai warehouses remain relatively high and Indonesia, tin’s largest exporter, continues to boost global supply.
Edward Gardner, Economist
What were the key trends in the coal market in 2017?
Coal prices were on a decreasing trend at the start of 2017 following China lifting production restrictions at the end of 2016. The restrictions had been put in place earlier in the year to support prices and aid a recovery in the mining industry. Prices continued to trend downwards well into Q2 2017 on the back of increased supply. Coal prices started to recover in June, however, due to supply disruptions in Australia and lower output elsewhere. Moreover, stricter environmental rules in China exerted upward pressure on prices. In more recent months, prices have been seen stabilizing below the USD-100 mark.
Were analysts’ predictions for coal in 2017 correct?
Many industry-watchers expected the coal industry to fare worse than it did in 2017, based on expectations of higher production cutbacks from the Chinese side and a faster shift towards alternative and increasingly-affordable energy sources.
Were there any surprises that affected coal that the market wasn’t expecting?
The election of Donald Trump in late 2016 came as welcome news to the coal industry as his administration has been supportive of policies designed to revive its flagging fortunes. Between 2002 and 2016, nearly 60 gigawatts of coal-fired power went offline in the U.S.—enough to supply nearly 60 million homes annually—largely due to increasingly cheap natural gas being used as an alternative. However, an increased focus on the environment in China, coupled with robust demand, were the main drivers behind the price uptick in H2 2017.
What was the biggest news in the coal industry this year?
The biggest news in the industry this year is the ongoing shift away from coal towards more environmentally-friendly fuels, particularly in advanced countries. For instance, in the United Kingdom, coal represented about 40% of the energy mix in 2012, yet that had dropped to just 2% in the first six months of 2017.
Coal Outlook 2018
What key trends do you predict for the coal market in 2018?
Next year, industry-watchers will be monitoring production levels in China closely since the country accounts for the largest demand and supply of coal globally, leading the market on prices. The key issue, however, will be whether Chinese authorities keep enforcing tougher environmental rules or even strengthen them in order to fight pollution.
Are there any concerns about the coal market for next year?
The coal market is seen benefiting from developing countries’ demand for electricity while, at the same time, many advanced countries are weening themselves off coal. The U.S. is bucking that trend, however, as President Trump is championing the coal industry. If developing countries slow their usage of coal-generated electricity next year and opt for more environmentally-friendly alternatives, possibly influenced by diplomatic initiatives such as the recently-launched Powering Past Coal Alliance, this could put downward pressure on coal prices and become a concern for the market going forward.
What factors should investors be aware of?
Industry investors should keep an eye on the corporate landscape, with key mining companies such as the Rio Tinto Group reportedly looking to exit the industry completely, and many large investors themselves, such as Norway’s sovereign wealth fund, already limiting their exposure to the industry for environmental and ethical reasons.
Jan Lammersen, Economist
What were the key trends in the lead market in 2017?
The key trend in the lead market this year has been a mismatch in supply and demand: the latter has generally outpaced the former throughout the year.
On the supply side, the ongoing environmental crackdown in China, which is aimed at solving its pervasive pollution problem, led to disrupted supply chains and decreased output of Chinese lead. As a result, the country has become a net importer of lead instead of being a net exporter. On the demand side, robust car sales in China as well as solid industrial production data from China, Europe and North America are propping up lead prices.
In short, the underlying fundamentals of the lead market have been strong this year.
Were there any surprises that affected lead that the market wasn’t expecting?
Demand from producers of stationary industrial batteries, which use lead, was expected to continue to grow but turned out to be subdued. Moreover, Donald Trump’s victory was expected to boost base metals on the back of the promise to rebuild the country’s infrastructure, which has not happened yet. Also, market participants were caught by surprise by China’s bold enforcement of antipollution measures which disrupted supply.
What was the biggest news in the lead industry this year?
The biggest news is likely the length and scope of the environmental inspections in China, which some analysts say are the most severe in the country’s history and have lead China to become a net importer rather than a net exporter of lead.
Lead Outlook 2018
What key trends do you predict for the lead market in 2018?
The key trends in the lead market in 2018 are expected to mirror those of this year: Ongoing tightness in the underlying fundamentals and a mismatch in supply and demand, will continue to support lead prices.
Are there any concerns about the lead market for next year?
The biggest question in the lead market is whether the current price levels will rise further or if they are due to decrease going forward.
What factors should investors be aware of?
Trends affecting lead prices in the New Year are likely to be carried over from this year; supply levels are expected to remain low and will be outpaced by demand. Game changers or surprises would likely be linked to a sudden drop in demand or a surge in supply, which would narrow the supply deficit and thus put downward prices on lead. It is, however, unlikely that demand will decrease significantly or that the supply shortage will decrease markedly.
Oliver Reynolds, Economist
What were the key trends in the natural gas market in 2017?
Natural gas prices dipped sharply at the start of the year on the back of a mild winter in the U.S. and uncertainty over U.S. energy and trade policy. Prices quickly recovering some of the lost ground, but are are still lower than at the start of the year. That said, they have risen in recent weeks on higher residential demand. Nevertheless, prices remain depressed in terms of recent historical standards.
Were there any surprises that affected natural gas that the market wasn’t expecting?
Hurricanes Harvey and Irma caught many by surprise, although the impact on the natural gas market was fairly limited, as U.S. shale production picked up most of the slack left by the temporary shutdown at natural gas production facilities.
What was the biggest news in the natural gas industry this year?
The biggest news was probably the continued march of the U.S. shale gas industry, with a slew of new projects currently in development including substantial improvements to pipeline infrastructure. The country is fast becoming one of the industry’s major players.
Natural Gas Outlook 2018
What key trends do you predict for the natural gas market in 2018?
Natural gas demand looks set to rise further in 2018 thanks to low prices and its better eco-friendly credentials compared to other fossil fuels. Developing economies—particularly China—will account for most of the increase. This should cause prices to tick back up slightly above USD 3 per million British thermal units (MMBtu). However, supply is also set to pick up, driven by greater U.S. shale production and higher output from the Middle East and China. This will likely keep a lid on any big price increase.
Are there any concerns about the natural gas market for next year?
Supply security will remain a serious concern. The threat of militant attacks in Nigeria’s Niger Delta region continue to linger, as will tensions in the Middle East—as evidenced by the ongoing diplomatic spat involving Qatar, one of the world’s key players. Disputes between Russia and the EU over the conflict in Ukraine are also possible.
What factors should investors be aware of?
Developments in the U.S. are sure to hold investors’ attention next year. A key question is the extent to which the U.S. administration will deregulate the country’s energy sector, which could boost natural gas supply. A potential unravelling of NAFTA could also hit U.S. natural gas exports to Mexico, with a consequent knock-on effect on prices.
Photo by Jason Blackeye on Unsplash
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.