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Stormy Seas for Crude and Industrial Metals Experience Their Own Headwinds: Scotiabank Commodity Price Index report

TORONTO, Sep. 13, 2017 (Canada NewsWire via COMTEX) --

The Scotiabank Commodity Price Index gained 2.5% m/m in August, with strong industrial index performance (+4.3% m/m) more than making up for the 4.4% pullback in the price of agricultural commodities. Hurricanes Harvey and Irma have impacted the demand for crude and further pushed off the forecast price recovery. Most of the price impact has been felt in the WTI benchmark, with its discount to Brent increasing to more than $6/bbl from the roughly $2.50/bbl it has averaged year-to-date.

Estimates put supply-demand balances in mild deficit over the past half-year and visible commercial petroleum inventories continue to drain--a trend that needs to continue for WTI to break above $50/bbl through the fourth quarter as forecast.

"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."

Hurricane Harvey failed to panic the natural gas market, as marked by a muted price response which stands in stark contrast to the double-digits witnessed during earlier storms like Hurricane Katrina in 2005. The US energy renaissance is the primary cause of this newfound resilience to Gulf storms, with the one-third increase in US natural gas production concentrated in the American Northeast. When Katrina hit in 2005, the Gulf of Mexico accounted for more than 15% of total US gas supply compared to less than 4% today.

Industrial metal prices appear to have turned the corner and some, like copper, are expected to return much of their recent gains over the coming months as Chinese stimulus is withdrawn. Nickel experienced the largest rally among the major base metals, up nearly 40% at its peak from June, but prices are expected to fall back 5% further from current levels to $5/lb until high inventories are further depleted. Gold prices have reached their highest level of the year; however, it is highly likely that the Fed will hike interest rates in December, which is expected to bring gold back toward the $1250/oz level through 2018.

Other highlights:

    --  Copper's recent highs are unsustainable at this stage in the
        metal's cycle and prices are expected to fall roughly 10% from
        still-elevated current levels to $2.60-2.70/lb in the fourth
        quarter.
    --  Aluminium was the only major base metal able to resist
        sentiment headwinds.
    --  Zinc has pulled back, but prices are expected to rise 7% from
        current levels to average $1.50/lb through 2018-19.
    --  Inflation-adjusted interest rate expectations have steadily
        fallen to a year low of 33 bps from a recent high of 64 bps in
        early July.
    --  Despite a 50% surge from their June lows, iron-ore prices have
        already fallen more than 6% from recent highs and met coal is
        expected to follow.


Read the full Scotiabank Commodity Price Index online at:

http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/SCPI_2017-09-13.pdf

Scotiabank provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

About Scotiabank

Scotiabank is Canada's international bank and a leading financial services provider in North America, Latin America, the Caribbean and Central America, and Asia-Pacific. We are dedicated to helping our 24 million customers become better off through a broad range of advice, products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. With a team of more than 88,000 employees and assets of over $906 billion (as at July 31, 2017), Scotiabank trades on the Toronto (TSX: BNS) and New York Exchanges (NYSE: BNS). For more information, please visit www.scotiabank.com and follow us on Twitter @ScotiabankViews.

SOURCE Scotiabank

View original content with multimedia: http://www.newswire.ca/en/releases/archive/September2017/13/c8145.html

SOURCE: Scotiabank

For media enquiries only: Debra Chan, Global Communications, Scotiabank, (416)
866-6443, debra.chan@scotiabank.com

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