Oil prices are at 2.5-year highs. Global aluminum prices have reached five-year highs. And copper prices are up 20%. It's looking to be one of the best times for industrial commodities in years. But will it last?
Sambit Mohanty , senior editor for oil news and analysis in Asia, investigates the price movement of several industrial commodities and explores their prospects, with forecasts from Platts Analytics and S&P Global.
Finally, an upturn in industrial commodity prices - but will it last?
Sambit Mohanty, Senior Editor, Asia Oil News & Analysis
Welcome to The Snapshot – a series that examines the forces shaping and driving global commodities markets today.
For investors hoping for a recovery in prices of industrial commodities, it has been a painful wait. Many successive years of oversupply worries have haunted the markets.
But finally, prices of industrial commodities – from oil, to steel to aluminum – are seeing the light of the day.
Crude oil and base metals prices touched multi-year highs.
The market is slowly but surely realizing that many years of under investment may come back to bite and could create supply-side shocks. In addition, the prospect for global commodity demand looks relatively strong, thanks to a robust outlook for the world economy.
S&P Global expects the world economy to continue to grow around 3.5 percent over the next few years. Monetary policy is seen to continue to provide a tail wind to growth in the developed world.
Even financial investors are realizing that it might be a good time to add commodities to their investment portfolios, giving industrial commodity prices a boost.
In oil, three years of low prices have stimulated demand growth. And prices have recently reached 2.5-year highs.
Platts Analytics 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 result in global balances tightening.
Regional tensions – in North Korea or the Middle East for instance – could potentially disrupt supplies, which along with low surplus stocks and OPEC spare capacity could result in price spikes.
Now, let's turn our attention to steel. China’s infrastructure spending has supported domestic pricing and reduced exports, with shipments falling to their lowest level since February 2014.
Stringent production cuts from China's 2+26 Cities policy have tightened the supply and demand balance. There is even talk of exports getting squeezed even further. This should support steel prices and pressure raw material costs in the near term.
In the base metals market, copper prices have gained over 20 percent this year, while aluminum prices surge to 5-year highs. Talks of excess capacity cuts, as well as a crackdown on illegal capacity, have kept the market on tenterhooks.
Regulators have stepped up environmental protection inspections.
In addition, China has announced a series of winter cuts at alumina refineries. This government-led rebalancing of several sectors has supported metal prices globally.
As prices hold on to their gains – the common denominator is producers who are not keen to let supplies expand at their own will. The pain from excess supplies and feeble prices is still fresh in their minds.
Will producers hold on to their policies to keep a lid on production? Only time will tell.
Until next time on The Snapshot, we’ll keep an eye on the markets.