Commodities following different paths on a common upward hill - Scotiabank

In view of Rory Johnston, Analyst at Scotiabank, an accelerating global economy and a weakening US dollar will provide a broadly supportive backdrop and buttress the ongoing recovery of industrial commodity prices.

Key Quotes

“Oil markets are rebalancing along prior expectations, though bearish sentiment will require further realized supply deficits for WTI prices to break above $55/bbl.”

“Industrial metals rallied together through Q3, but prices have since diverged and we expect metal-specific fundamentals to drive differentiated price performance through 2019.”

“Global commodities are broadly forecast to gain ground through the forecast horizon but recovery paths are increasingly heterogeneous, both across sectors and within them. Energy markets are experiencing gradual, rangebound recoveries against volatile metals performance. While metals rallied together in the third quarter, prices are diverging again as individual fundamentals reassert control. These market-specific developments are occurring against a widely supportive backdrop, where an accelerating global economy is bolstering commodities demand and broad US dollar weakness is putting upward pressure on dollar-denominated contracts.”

“Chinese industrial and environmental policy remain the key outlook risks, with the timing of stimulus withdrawal as well as the seriousness of supply-side and environmental efforts likely to keep the market guessing. On balance, we anticipate that most industrial commodities will continue to gain in year-over-year terms through the forecast horizon, though bulk commodities are expected to undergo a needed correction and precious metals prices are forecast to fall back on a higher rate environment.”