Digging deep into metals & minerals: Scotiabank Special Report
TORONTO, March 2, 2017 /CNW/ - The Scotiabank Commodity Price Index advanced by 6.4% m/m in January, driven by strong performance of the Oil & Gas (+7.5%) and Metals & Minerals (9.9%) subindices (the focus of this month's special report). The Agriculture index also performed well, up 4.1%, while the Forest Products index fell by 0.3%.
A renewed sense of optimism is expected as representatives of the global mining industry gather in Toronto for the annual convention put on by the Prospectors and Developers Association of Canada (PDAC). This time last year, the prices of most industrial commodities were sitting near cycle lows and sentiment was dour. Since then, prices have risen across the board—from zinc's expected fortunes to copper's unexpected turn-around to downright frothy prices for the bulks.
"While the worst is likely behind us, the pace and magnitude of some of these recent price gains has been exaggerated, driven by short-term government policy, rather than organic industrial fundamentals," said Rory Johnston, Commodity Economist at Scotiabank. "One common factor for most is the outsized near-term importance of highly uncertain politics and policy. Many of these uncertainties relate to policy out of Beijing, which has the unique ability to sway the fate of virtually every material, but we will also see how Indonesian, Filipino, Chilean, Indian, and American policies are all affecting commodity prices in one way or another."
An overview of the current state and forecast trajectory of the major metals markets, below:
- Gold: rising rates, stronger dollar, and a generally sanguine investor outlook despite significant political uncertainty all pose headwinds for the yellow metal; prices are forecast to average $1200/oz. in 2017 and 2018.
- Copper: supply deficits now expected over the next two years, supporting prices to $2.40/lb. in 2017 and $2.50/lb. in 2018; current rally expected to ease following the resolution of major work stoppages in Chile and Indonesia.
- Zinc: remains the metal with the strongest near-term fundamental outlook on the back of acute concentrate shortages; prices are forecast to average $1.35/lb. in 2017 and $1.55/lb. in 2018.
- Nickel: supply deficits will provide moderate support to prices, which are forecast to average $5.20/lb. in 2017 and $5.00/lb. in 2018, but a chronic inventory overhang will need to be worked down before prices rise further.
- Aluminium: rumours of potential Chinese smelter curtailments have injected some rare good news into aluminium prices, though specifics are still pending; prices are forecast to average $0.75/lb. in 2017 and $0.77/lb. in 2018.
- Iron Ore : prices are expected to fall from currently-inflated levels as the tailwinds of Chinese stimulus begin to fade; low-cost supply is forecast to edge out higher-cost producers, bringing prices to $55/t. in 2017 and $50/t. in 2018.
- Metallurgical Coal: Beijing is in the driver's seat as its capacity rationalization strategy (specifically mine-day policy) impacts the availability of domestic coals; prices are forecast to average $180/t. in 2017 and $120/t. in 2018.
Looking to oil, the oil market continues to rebalance as global supply growth slows and demand marches on, despite precarious speculative positioning leaves crude vulnerable to near-term retracement, but we remain committed to our medium term outlook with prices forecast to average $58/bbl in 2017 and $61/bbl in 2018.
Read the full Scotiabank Commodity Price Index, Special Report online at: http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/SCPI_2017-03-02.pdf.
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