Crude, industrial metals facing short-term headwinds

Scotiabank’s latest index suggests challenges for commodities

Crude, industrial metals facing short-term headwinds
Steve Randall
There are some challenges ahead for investors in commodities and while some may be short-term, there are also some sustainability concerns.

The latest Scotiabank Commodity Price Index report shows a gain of 2.5% month-over-month in August with strong performance in industrials (4.3%) offsetting the decline for agricultural commodities (4.4%).

Oil prices will take longer to see recovery following Hurricanes Harvey and Irma which have weakened demand for crude. WTI is lagging the international benchmark Brent by more than $6 per barrel, compared to the year-to-date average of $2.50.

"Hurricane effects are expected to be short-lived, but tilted to the bearish side given the larger impacts to feedstock and product demand rather than crude supply," said Rory Johnston, Commodity Economist at Scotiabank. "While the worst is behind the oil market, the next leg up for crude prices will be choppy given a hesitance to push prices too high for fear of fueling the US shale patch into renewed overdrive."

Scotiabank says that copper prices are unsustainable at the current stage in their cycle and forecasts a 10% decline in the fourth quarter to $2.60-2.70 per lb.

Aluminium has managed to resist headwinds while zinc prices have fallen but are expected to gain 7% from current levels to $1.50 lb on average through 2018-19.