Is there a glimmer of light for industrial commodities at last?

The wait was long and painful. The recovery has been slow and not free of turbulence.

After sailing through choppy waters for years, prices of industrial commodities -- such as oil, steel, base metals -- are finally seeing levels not seen in several years, bringing a whiff of relief to markets feeling the pinch from a rampant rise in production, faulty government policies, feeble interest from investors and global growth concerns.

Crude oil has touched its highest level in 2 1/2 years, aluminum prices rose to five-year highs, and copper has gained more than 20% this year.

Market participants said that many years of under-investment may come back to bite and could create supply shocks. In addition, the outlook for global commodities demand looks relatively strong, thanks to a positive outlook for the world economy.

S&P Global expects the global economy to continue to grow annually at around 3.5% over the next few years. Monetary policy is expected to continue to provide tailwind to growth in the developed world.

And therefore, even financial investors are realizing that it might be a good time to add commodities to their investment portfolio, giving industrial commodity prices a boost.

TRIPLE WHAMMY

In the world of oil, three years of low prices have stimulated demand, with a growth of 1.5 million b/d expected in 2017.

expects oil demand in 2018 to grow at 1.8 million b/d. This, along with the OPEC and non-OPEC production cuts, has finally started to balance global markets.

The potential fear of regional tensions -- be it in North Korea or in the Middle East -- could cast dark clouds over supplies, which along with low stocks and lower OPEC spare capacity could result in a spike in prices. In addition, the deficit of projects sanctioned over the last three years could start to bite.

Platts Analytics expect prices to test $80/b before 2022. In the next 3-4 years, electric vehicles will not be able to make a big dent in oil demand. Every one million additional sales of EVs only replaces 30,000 b/d of demand.

Even the LNG market has seen some recovery in prices in recent months as both India and China push clean fuels and try to raise the share of gas in the energy basket. But the outlook for LNG prices may not be as rosy as other industrial commodities as new supply chain gets ready to come on stream.

According to Platts Analytics, major policy decisions in China and India will have a significant impact on the outlook for future prices as renewables may continue to encroach on gas demand for power.

METALS AND CHINA

Global steel prices have rallied sharply recently as Beijing has sharply boosted its spending in infrastructure. The trickle-down effect of this move has resulted in a pickup in domestic prices and reduced exports -- overseas shipments in October reached the lowest level since February 2014.

A big push to cut production -- thanks to the 2+26 Cities policy -- has altered the supply-demand balance. And this may not be the end. There are fears that exports could take an ever bigger hit. As supply from China gets squeezed, this should support steel prices and raw material costs in the near to medium term.

Beijing looks determined to clamp down on non-performing steelmakers and manufacturers. China removed 120 million mt/year of induction furnace capacity this year, showing what the government can achieve.

In addition, global steelmakers operating in China have said they were feeling the pinch because of a squeeze in credit to steelmakers that don't meet environmental targets.

Beijing's plans to lift the overall quality of manufacturing in China is also evident in the base metals market.

Global aluminum prices recently surged to 5-year highs. A cut in excess capacity as well as a crackdown on illegal smelters have roiled the market. In addition, Beijing has announced a series of winter cuts at alumina refineries in an effort to save energy.

Summing it up, the government-led rebalancing of several sectors has supported metal prices globally.

Industrial commodity prices are holding up as producers try to ensure that growth stays under check as the pain from excess supply and low prices is still fresh.

With the world economic growth outlook looking relatively brighter, there may still be room for some upside for the industrial commodities market.