TORONTO, Jan. 18, 2018 /CNW/ - Commodity markets rang in
the New Year on their front foot and virtually all industrial
materials are maintaining upward momentum after cementing strong
gains made over the latter half of 2017.
"Along with a robust global demand, we anticipate tighter supply
conditions for most industrial commodities in 2018," said
Rory Johnston, Commodity Economist
at Scotiabank. "A depreciating dollar and lurking geopolitical
risks will also contribute to the upward trend in prices."
On the supply side, production growth is slowing as the pipeline
of projects sanctioned amidst the high prices of the mid-2010s
empties over the forecast horizon. However, the latest increase in
prices was driven by demand considerations as markets anticipate
booming demand for energy and metals on the back of the first
synchronized global economic acceleration since the Global
Financial Crisis.
Despite the recent price gains, Scotiabank's Commodity Price
Index (SCPI) retreated by 3.5% m/m in December, depressed by the
marked 9.8% m/m fall in the Oil & Gas sub-index. While global
oil prices fared well through the end of 2017, the SCPI tracks the
prices received by Canadian commodity exporters and the value of
Canadian crude decoupled from regional benchmarks after November
due to acute pipeline constraints.
Global oil markets ended 2017 with all the tell-tale signs of
tight fundamentals and prices currently sit at three-year highs
(WTI >US$63/bbl). While we
anticipate a mild seasonal surplus in the first quarter of 2018
that could derail crude's current rally, market balances are
expected to remain in deficit through most of the forecast horizon.
This prompted us to upgrade our oil price outlook, with WTI now
forecast to average US$57/bbl in 2018
and US$60/bbl in 2019 (up from
US$52/bbl and US$56/bbl last quarter).
Closely related to the perceived health of the industrial
sector, metals prices have rallied alongside global growth
expectations. Base metals, in particular, have seen considerable
gains since last summer, 20–40%, depending on the metal. Meanwhile,
bulk commodities like iron ore that underpin the steel industry
have seen more muted performance, down from last summer.
Anticipated growth in manufacturing activity is good news for
base metals demand as the output of home appliances and consumer
electronics rises, but slower Chinese construction activity will
weigh on steel-related commodities and may temper gains in
commodities like copper that are heavily leveraged against building
wiring as well as electrical transmission distribution
infrastructure.
Within the metals complex, zinc maintains the strongest
fundamentals and prices remain near their highest level in more
than a decade. While still earlier in its rebalancing cycle than
zinc, copper is the metal with the most improved fundamental
outlook.
Other highlights:
- Zinc is forecast to rise to US$1.60/lb through 2018–19, though prices are
likely to jump far above those annual average levels when tightness
becomes most acute later this year.
- Copper is expected to average US$3.05/lb in 2018 before rising to US$3.25/lb in 2019 as physical balances tighten,
with near-term industry labour negotiations tipping risks to the
upside.
- The forecast for gold remains unchanged at US$1300/oz through 2018-19, caught between the
headwinds of rising global interest rates and the tailwinds of a
secularly depreciating US dollar.
Read the full Scotiabank Commodity Price Index report online
at:
http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/SCPI_2018-01-18.pdf
Scotiabank provides clients with in-depth research into the
factors shaping the outlook for Canada and the global economy, including
macroeconomic developments, currency and capital market trends,
commodity and industry performance, as well as monetary, fiscal and
public policy issues.
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SOURCE Scotiabank