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World Commodity Forecasts Industrial Raw Materials

  • ID: 2101443
  • October 2016
  • Region: Global
  • 107 Pages
  • The Economist Intelligence Unit
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After a dismal few years, commodity prices began to reverse course in 2016, with the price of most industrial raw materials (IRM) tracked by The Economist Intelligence Unit now on an upward trend, albeit a wobbly one. The Chinese government's efforts to stabilise the economy after the panic in January, coupled with a partial rally in oil prices, have provided support. Prices have also benefited from a slightly softer US dollar and from investors' renewed appetite for risky assets as yields in the developed world have remained depressed.

Although we expect this trend to continue in 2017-18, we remain cautious about the global economic outlook and, in turn, prospects for commodity markets. We expect global GDP growth to quicken only slightly in 2017-18, to 2.5% a year on average, from an estimated 2.1% in 2016. Sub-par economic activity in developed economies, partly as a result of the UK's vote to leave the EU, will weigh on global growth. Anxiety about the ability of the Chinese government to cool its economy at a steady pace also remains an issue. More generally, heightened uncertainty about global monetary policy-at a time when traditional easing measures (such as interest-rate READ MORE >

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World Commodity Forecasts Industrial Raw Materials

Economist Intelligence Unit commodity price index
Raw materials prices are on a rising, but volatile, trend
There is a growing divergence between the prices of different base metals
Cotton and rubber prices are slowly reviving
An oil output freeze would not make a big difference to the market
High stocks will cap the rise in oil prices in 2017-18

Aluminium
Demand
Chinese aluminium demand will be hit by slower investment in 2018
India's aluminium usage will boom in 2016-18
EU demand will slow in 2017 in line with weaker economic growth
Demand for aluminium in the US has been buoyant in early 2016
Supply
Chinese production forecasts cut as smelters struggle to advance restarts
Production falls below expectation in India
US restarts in 2017 are unlikely given the price outlook
Output outside China is exceeding expectations
Production (excluding China) will rise above 2008 levels from 2016
Stocks and prices
Slower reactivation of Chinese smelters is providing support for LME prices
Bottom of current down cycle appears to have passed
Prices will continue to recover, but without much conviction

Coal
Demand
China's coal consumption from the power and industrial sectors is falling
US coal consumption continues to experience a severe downturn
Coal use will fall in the UK, but remain important in Germany and Poland
India's coal consumption will remain robust
Supply
China's output will fall as capacity cuts continue amid weaker demand
US production is on a downward trajectory
The Indian government will struggle to double production by 2020
Australia will achieve a marginal increase in output in the near term
Stocks and prices
Average prices will fall slightly in 2016 before picking up in 2017

Copper
Demand
China's copper demand will keep rising in 2017-18, albeit at a slower rate
Robust Chinese demand growth in 2016 masks underlying weaknesses
Commercial stockpiling could inflate apparent consumption
Asian consumption growth will struggle, with the exception of India
European copper consumption is rising quickly
Supply
Peru is set to remain the second-largest global copper mining country in 2016
Mining faces challenges in Chile, the biggest copper-mining country
Risk of further production cuts has receded, but capacity will remain closed
Policy uncertainty weighs on Indonesia's copper sector
Annual treatment charges for 2017 are expected to settle above US$100/tonne
Contrary to earlier declarations, Chinese smelters are not showing much restraint
Stocks and prices
Chinese stocks rise on high imports and weak arbitrage rates
Combined LME and SHFE stock levels have fallen slightly so far in 2016
Copper prices are on a modest upward trend, but downside risks persist

Cotton
Demand
China's declining competitiveness is weighing on consumption
Despite textile-sector reforms, India's consumption growth will be modest
A power deficit and high operating costs hinder growth in Pakistan
Consumption in Bangladesh will grow, regardless of poor safety standards
Vietnam's consumption is set to continue to rise quickly
Supply
China's output will drop as subsidies are trimmed and production costs rise
More normal weather conditions will support modest output growth in India
Favourable growing conditions will support higher US output in 2016/17
Pakistan's production is set to rise in 2016/17, from a 17-year low in 2015/16
Weak support for farmers weighs on Brazil's output
Increased use of certified seeds boosts prospects in Turkey
Stocks and prices
Chinese import restrictions will be negative for prices
Auction sales in China will weigh on prices in the near-term
High stocks and weak demand growth will limit price growth

Crude oil
Demand
US oil consumption growth will decelerate in 2017
European oil demand will retreat in 2017-18
China's demand growth will edge down
Other emerging markets will not make up for China's slower demand growth
Supply
We continue to forecast a rise in OPEC output
Nigeria's 2017-18 output will be higher than in 2016, but militancy will persist
US production will return to growth in the course of 2017
Russian producers hope to delay what seems an inevitable decline until 2018
Stocks and prices
An output freeze would not be so big a deal
High stocks will cap the rise in oil prices in 2017-18

Gold
Demand
Net retail investment will pick up, but more modestly than for ETFs
Higher gold prices will take their toll on gold jewellery purchases in 2016-17
Industrial gold is less competitive than alternatives
A few central banks continue to accumulate gold
Supply
Chinese production will add to global supply in the short term
Australia's production looks set to continue to rise in 2016-18
US-dollar strength will undermine US-based mines' profits
South Africa's gold output will continue to slip
Higher prices will spur recycling efforts in 2016-17
Producer hedging will fall in 2017, before rising in 2018
Stocks and prices
Brexit vote has significant impact on gold price forecast

Lead
Demand
Trends in China's car sales remain supportive of lead demand
Europe's car sales rose by a strong 9.4% year on year in January-June
Strong car sales in the US may not boost lead consumption immediately
Japan's lead demand will stabilise in 2016-18
Supply
Disparity in Chinese data continues to cloud the true pace of activity in China
Lead-smelting capacity additions are planned outside of China
Global mine output dropped by 6.9% in January-June, owing to closures
Stocks and prices
LME stocks little changed so far in 2016; SHFE stocks are beginning to decline
Lead prices will rise in 2017-18 as markets tighten

Liquefied natural gas
Demand
Japan's LNG demand appears to be in long-term decline
Japan is promoting a more flexible LNG market
South Korea's imports are likely to continue to fall, despite new energy plan
Gas will play a major role in China's energy mix
South-east Asia will be a key region of growth in LNG imports
India's LNG demand is price sensitive
The EU will absorb much of the new supply in 2016-18
Supply
Qatar is having to adapt to greater competition in the market
Low prices could constrain Australia's exports
Asian producers are lifting output
The US will be a significant LNG exporter by 2018
Nigeria's production will rebound in 2017-18, after dipping in 2016
Prices
Producers will be forced into greater flexibility in their contracts

Natural gas
Demand
US demand will increase in 2017-18, after slipping in 2016
The US presidential election will have little impact on use in 2017-18
Europe's gas demand will grow at a modest rate, supported by low prices
Russian consumption will be limited by the domestic economic performance
Gazprom shrugs off regulatory setback to Nord Stream 2
China seeks to stimulate demand recovery with lower city-gate prices
While limited, the restarting of nuclear power will constrain gas usage in Japan
Supply
North American production continues to benefit from strong US demand
Russian production will increase despite new sanctions
Shale exploration in Europe has so far been disappointing
Iran courts upstream gas investment following nuclear deal
Saudi Arabia is planning new capacity
Stocks and prices
Price recovery will be muted, owing to high production and stock levels

Natural rubber
Demand
The collapse in China's NR imports in July is likely to be a one-off
India's rubber consumption showed signs of recovery in the second quarter
Other Asia consumption is being boosted by stockpiling
North American usage could pick up in 2018
EU consumption growth is likely to slow following the UK's vote to leave the EU
Low oil prices will enhance the appeal of SR in 2016
Supply
The scale of El Niño-related damage to Thailand's rubber trees is unclear
Indonesia is expanding planted area
Growth in Vietnam's production will recover steadily in 2017-18
Government support could help to boost Malaysian output in 2017
India's production may pick up in 2017, encouraged by higher prices
Stocks and prices
A more durable rally in prices will take hold from the fourth quarter of 2016

Nickel
Demand
China's nickel demand growth will slow in 2017-18
China's nickel users are moving to alternatives to nickel ores
Nickel use will grow in most advanced economies, albeit slowly
Supply
Environmental policies are constraining nickel mining in the Philippines
The government in New Caledonia is stepping in to support the nickel sector
Indonesia's policy heightens uncertainty for miners and refiners
China's nickel producers face myriad challenges
Russia's refined nickel output will rebound in 2017-18
Stocks and prices
Market tightening will push up prices in 2017

Steel
Demand
Credit boost provides short-term support for Chinese steel demand
US automobile sales and construction will support North American demand
Brexit may not have a strong immediate impact
Other Asia is struggled in 2016
Supply
Chinese output is running at elevated levels
US steel output will see a rebound in 2016
NAFTA governments are targeting steel dumping
The EU is stepping up anti-dumping measures
India's steel production is set to improve thanks to import protection
Iron ore prices will ease after surging in the second quarter
Coking coal prices jumped in July-August
Stocks and prices
Utilisation rates will struggle to rise above 75%
The rally in prices has lost steam and we expect further softening later in 2016

Tin
Demand
Tin consumption has been mixed so far in 2016
The outlook for tin demand is positive, but there are challenges
The chemicals sector is expected to add to tin demand, unlike tinplate
China's tin demand growth, although slowing, looks set to continue
European tin demand is forecast to remain flat in 2017-18
US tin demand is in long-term decline
Long-term prospects for Japan's tin consumption look limited
Supply
Rapidly rising mine output from Myanmar is flowing into China
Data on Burmese output is patchy
The risk of disruption from ethnic conflicts is diminishing
Regulations and resource depletion are undermining Indonesia's tin sector
There are doubts about Indonesia's tin mine output potential in the long term
New mines and expansions are expected to add only a limited amount to output
Stocks and prices
Tin prices will be supported in 2017-18 by a finely balanced market

Zinc
Demand
China's zinc demand will grow by 3.4% a year in 2017-18
EU passenger-vehicle sales grew by 9.4% year on year in January-June
Destocking by steelmakers is lowering growth in apparent zinc use in the US
Supply
Chinese zinc output will slow as smelters run down concentrate stocks
Tight concentrate availability will lead to lower output in 2016-17
Tighter ore availability is becoming evident
Benchmark TC deals in 2016 are set well below the 2015 record
Stocks and prices
LME and SHFE stocks are displaying diverging trends
Prices will rise more strongly in 2016-18 as wider deficits are forecast

Statistical appendix

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