Commodities Outlook October 2017

Commodities Outlook October 2017: Commodities prices rise for third consecutive month in September

October 10, 2017

Global commodities prices extended their two-month rally in September, according to an estimate by FocusEconomics. The FocusEconomics global price index increased 2.5% from August. Soaring energy prices led the rise, followed by more moderate price increases for base and precious metals. Agricultural prices, however, declined for the second month in a row. On an annual basis, the recovery in prices following the 2015–2016 price collapse remained strong, and the index expanded at a double-digit rate for the third straight month. The global index jumped 20.7% over the same month last year, the largest increase in seven months and up from August’s 18.0% year-on-year gain.


Brent Crude Oil prices jumped to a two-year high in recent weeks on the back of strong global demand and tighter supply from producers participating in the oil cut deal. While Russian and Saudi officials signaled that they are ready to extend the oil cuts to the end of 2018 in order to support prices, markets are skeptical of whether key oil suppliers will stick to the deal for an extra year, as many participating countries continue to grapple with large fiscal imbalances. Moreover, shale oil producers are expected to boost output in a context of higher prices, partially offsetting the efforts made by OPEC and Russia. While WTI Crude Oil prices remain more subdued, they also jumped in recent weeks mainly due to the increased Brent-WTI differential. Relatively low WTI Crude Oil prices boosted U.S. oil exports, which hit a record high of just below 2 million barrels per day in the last week of September.


Gasoil prices soared to a two-year high in recent weeks following disruptions in U.S. Gulf Coast refineries due to a devastating hurricane season. Stricter environmental regulations in China also boosted prices for a number of commodities ranging from thermal coal to alumina. Zinc prices hit an over ten-year high, reflecting the Chinese government’s efforts to curb pollution and higher demand from China. Precious metals saw higher prices due to mounting global uncertainty. In contrast, agricultural prices continued to underperform relative to other commodities groups mainly due to higher supply for key commodities.


Energy | Q4 2018 prices broadly stable on doubts about current rally


Prices for Brent and WTI crude oil rallied in recent weeks on the back of resilient global growth, which is boosting demand, and signs that the oil cut deal could be extended well into 2018. That said, the FocusEconomics Consensus Forecast for the energy market was upgraded only slightly this month as fundamentals for a sustained recovery in prices remain weak. Any sharp rise in oil prices should be offset by higher demand from shale producers, particularly in the United States. Moreover, most participants in the oil cut accord are still facing considerable economic imbalances and could therefore be tempted to deviate from the deal.


In Q4 2018, the FocusEconomics energy price index is seen averaging 96.3, which is slightly above last month’s 96.2 and would represent a 3.3% increase from the expected 93.2 in Q4 2017. The revision reflects higher forecasts for three commodities, including WTI crude oil. However, the price projections for uranium were downgraded, while five commodities saw unchanged forecasts. 


Base Metals | China continues to lead increases Q4 2018 forecast


Strong global demand, particularly in China, is supporting prices for base metals. Moreover, prices are benefiting from stricter environmental regulations in China and other countries such as the Philippines, which could cool output of key commodities. Our Consensus Forecast for base metals rose for the third consecutive period this month. The FocusEconomics base metals price index is seen averaging 67.3 in Q4 2018, which represents a 2.0% increase over last month’s forecast. Nevertheless, it would be slightly below the 68.5 projected for Q4 2017.


This month, the price forecasts for Q4 2018 were raised for nine metals, including aluminium, copper, lead and iron ore. Aluminium, lead, tin and zinc all saw sizeable upgrades. On the other hand, price forecasts were stable for aluminium alloy and steel (EUR). 


focuseconomics_october_2017_lead.jpg


Read more about Lead prices. Click on the image to see a larger version.


Agricultural | Fears of oversupply hit price outlook for Q4 2018


The agricultural commodity index was downgraded this month and is expected to average 125.9 in Q4 2018, which is 1.0% lower compared to August. Surging supply for a number of agricultural commodities is keeping prices subdued. That said, the index is seen rising from 120.4 in Q4 2017 as a result of healthy demand.


Behind this month’s outlook were downgraded forecasts for seven commodities including cocoa, coffee, soybeans and sugar. However, corn’s forecast was upgraded, while oats’ projection was left unchanged.


Precious Metals | Prices for Q4 2018 rise for fourth consecutive month


The Consensus Forecast for the precious metals market improved for the fourth consecutive period this month, as a weak U.S. dollar and rising geopolitical uncertainty are fueling demand for safe-haven assets. That said, the trend could reverse if the U.S. Federal Reserve resumes its tightening cycle despite low inflation, global jitters ease and global growth remains resilient. The FocusEconomics precious metals index is expected to average 196.3 in Q4 2018, above last month’s 194.8 projection. This year, the index is seen averaging 194.6 in Q4, which, if confirmed, would mark a 2.7% rise in prices from Q4 2016.


All precious metals price forecasts were hiked for Q4 2018. Platinum and gold, in that order, led the increase. 


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