TORONTO (miningweekly.com) – Commodity price indices have rallied in recent weeks as strong performance by oil softened the lull in metals price movements.

Scotiabank's commodity price index had improved by 4.5% month-on-month in April as energy gains more than offset metals weakness.

Several recent high-profile disruptions caused temporary shifts in price that pushed crude oil prices above the psychologically important $50/bl level for the first time since October; however, Scotiabank Economics did not expect the market to enter a sustainable deficit until mid-2017. Improved grains and oilseed prices rounded out a good month for the prices of major Canadian export commodities, the Canadian banking group advised on Friday.

Scotiabank’s Oil & Gas Index advanced by 12% month-on-month in April, as rising crude prices continued to test fresh highs. West Texas Intermediate (WTI) crude rose to $50/bl intraday over the past week as prices responded to a series of unplanned disruptions, including the Fort McMurray wildfires. However, Scotiabank Economics expected WTI to average $42/bl in 2016.

"Some of these disruptions can be chalked up to bad luck. These recent disruptions are not, in our view, a sign of an imminent rebalancing of supply and demand but they do illustrate that the road to balance will be bumpy,” stated Scotiabank commodity economist Rory Johnston.

Record crude inventory levels and the impermanence of recent disruptions were blunting any material spike in prices, analysts noted.

Meanwhile, the price of Canadian natural gas remained low as current inventory levels were more than 70% higher than the five-year average for this time of year. This was largely the result of a mild winter and the recent impact of the Albertan wildfires on regional demand.

Meanwhile, the Metals & Minerals Index contracted by 0.3% month-on-month in April, as some of the speculative fervour on Chinese commodity exchanges began to dissipate. All significant base metals lost ground relative to late-April/early-May highs, impacted by the easing price of iron-ore, which had shed more than $20/t (almost 30%), Scotiabank advised.

According to analysis by Scotiabank, copper would likely experience continued headwinds through the northern hemisphere summer on weaker demand prospects and a sluggish supply response.

Zinc continued to display the strongest fundamentals within the base metals group and prices remained more than 30% higher than mid-January levels, the bank advised.

SUPPLY SIDE JITTERS
NYSE-listed commodities analyst IHS also reported that its Materials Price Index (MPI) rebounded last week, managing to etch out a 0.6% gain despite global headwinds.

The main driver was the oil sub-index, which posted a 6.4% gain as crude prices came very close to $50/bl.

IHS global insight pricing and purchasing senior economist Cristian Niculescu-Marcu noted Thursday that the ferrous sub-index did not move much despite new US steel tariffs being announced and the European Union talking up similar moves.

“Despite declines in nonferrous metals, drams, freight and rubber, we saw upward moves in lumber and fibre. Oil prices were critical to last week's MPI, driven by the ongoing Canadian wildfires that were taking 1.5-million barrels a day of production offline, in addition to further outages in Nigeria as a result of militant attacks on oil infrastructure.

US industrial output provided something of an upside surprise, rising 0.7% month-on-month in April, compared with the previous month's decline, the firm advised.

However, the Japanese flash manufacturing purchasing manager’s index for May declined to 47.6. Niculescu-Marcu also pointed out that recent optimism regarding a stimulus-led rebound in China also seemed to fade last week and the US Federal Reserve sent out signals that a June rate hike was very much on the table, reinforcing the dollar’s recent lift.

“In all, these data releases typify mixed signals on the global economy. The expansion continues to be sure, but its uneven pace remains at odds with the broad-based rebound in commodity prices since January. Unless data flow improves, the current rally continues to look exposed to a partial rollback in the months ahead,” Niculescu-Marcu cautioned.