Commodities Outlook September 2017

Commodities Outlook: Commodity prices surge in August

September 13, 2017

Global commodity prices soared in August, according to an estimate by FocusEconomics. The FocusEconomics global price index increased 5.6% from July’s result, the largest monthly rise since November 2016. Surging prices for base and precious metals drove the increase, while prices for energy commodities saw a more moderate rise. In contrast, prices for agricultural commodities fell from the previous month. On an annual basis, the recovery in prices following the 2015–2016 price collapse picked up notable momentum and global commodity prices were up 18.0% in August, significantly above July’s 10.9% gain.


Weather developments took center stage in recent weeks and were chiefly behind soaring energy prices. Hurricane Harvey hit Texas on 25 August with torrential rains and high winds, causing widespread flooding, power outages and major economic disruptions to the area’s energy production. Nearly one-third of U.S. oil refineries were estimated to have been impacted by the storm and vital infrastructure in the region was badly damaged. As a result, the hurricane aggravated commodities markets and pushed gasoline prices to a two-year high in the wake of the storm. In September, price pressures have receded somewhat as major refineries come back online and Hurricane Irma triggered shortages for key energy commodities.  


Looking at the base metals market, a weak U.S. dollar led to widespread gains across most commodities. On top of this, a number of other factors are at play. Copper prices rose to the highest level since November 2014, supported by positive economic data from China and a healthy outlook for sales of electric vehicles. Prices for iron ore and nickel both soared by double-digits in August on the back of shifting expectations over the health of China’s economy. In addition, zinc prices rose by over 7.0% in August as supply-side pressure caused by falling global stockpiles added to rising demand.


Energy | Weather pressures dominate developments this month


The FocusEconomics Consensus Forecast for the energy market was downgraded for a fourth consecutive month despite weather shocks putting upward pressure on prices. These shocks should have only a temporary impact. OPEC will meet on 22 September to discuss the latest oil market developments, and any moves by the group will continue to play a key role in the determination of the forecast.


In Q4 2017, the FocusEconomics energy price index is seen averaging 93.6, which is below last month’s 94.3 and represents a 2.6% increase from the same quarter last year. The revision reflects lower forecasts for four commodities, including Brent and WTI crude oils. However, the price projections for natural gas and thermal coal were upgraded, while three commodities saw unchanged forecasts. In 2018, panelists see the index rising to 96.2. 


Base Metals | Prices rally drives second upward revision to forecasts


Our Consensus Forecast for base metals rose again this month, reflecting August’s strong rally. Robust demand from China and a weak U.S. dollar are boosting the metals market outlook. The FocusEconomics base metals price index is seen averaging 66.2 in Q4, which represents a 6.1% increase from Q4 2016, before falling slightly to 66.0 in Q4 2018.


This month, the price forecasts for Q4 2017 were raised for nine metals, including aluminium, copper, lead and iron ore. Copper saw a particularly notable upgrade amid high demand for its use in the production of electric vehicles. On the other hand, price forecasts were cut for tin. 


Agricultural | Conflicting supply and demand side dynamics hold price outlook steady


The agricultural commodity index was downgraded this month and should average 122.1 in Q4 2017, which is 5.0% higher than the same quarter last year. While the demand outlook for many agricultural commodities is high, surging supply is keeping price output broadly stable. In 2018, the index is seen rising and averaging 127.1 in Q4.


Behind this month’s outlook were downgraded forecasts for five commodities including soybeans and wheat. However, coffee’s and corn’s forecasts were upgraded, while the rest were left unchanged. 


Precious Metals | Safe-haven demand fuels small forecast upgrade


The Consensus Forecast for the precious metals market rose moderately this month, as a weak U.S. dollar and high amount of global uncertainty continue to push up prices. Although safe-haven demand for gold and silver is elevated following North Korea’s nuclear test, profit-taking by investors will likely take a bite out of price gains by year-end. The precious metals index is expected to average 192.2 in Q4 2017, above last month’s 191.2 projection. The result, if confirmed, would mark a 2.7% rise in prices from Q4 2016. In 2018, the index is expected to average 194.8 in Q4.


Gold and palladium saw upgrades to their price projections this month. Expectations of a more gradual tightening cycle by the U.S. Federal Reserve has helped boost gold’s price projection. Meanwhile, platinum and silver saw minor downgrades. 


focuseconomics_september_2017_palladium.jpg


Click on the image to open a larger version. Read more about palladium prices here

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