TORONTO (miningweekly.com) – A common factor in the outlook for most commodities included in The Bank of Nova Scotia Commodity Price Index is the outsized near-term importance of highly uncertain politics and policy, the group’s commodity economist Rory Johnston said in a special report of the Commodity Price Index this week.

Many of these uncertainties relate to policy out of Beijing, which has the unique ability to sway the fate of virtually every material, but Indonesian, Filipino, Chilean, Indian and American policies are all affecting commodity prices in one way or another.

“Global miners have made considerable headway in increasing project efficiency and shedding marginal assets as a means of tackling industry debt and handling the commodity price rout. However, the question remains whether this cost control will remain a core concern as prices rise, a question that becomes more pressing when one considers the often-transient policy supporting these higher prices,” Johnston said in the report released on Thursday.

Over the past 12 months, the prices of most industrial commodities were sitting near cycle lows and sentiment was dour. However, since then, prices have risen across the board – from zinc’s expected fortunes to copper’s unexpected turnaround, to downright frothy prices for the bulks, he comments.

“While the worst is likely behind us, the pace and magnitude of some of these recent price gains has been exaggerated, driven by short-term government policy rather than organic industrial fundamentals,” he stated, pointing to the Commodity Price Index gaining 6.4% month-over-month in January.

COMMODITY BRIEFS
Scotiabank expects copper supply deficits to emerge over the next two years, supporting prices to $2.40/lb in 2017 and $2.50/lb in 2018. The current rally is expected to ease following the resolution of major work stoppages in Chile and Indonesia.

Nickel supply deficits will provide moderate support to prices, which are forecast to average $5.20/lb in 2017 and $5/lb in 2018, but a chronic inventory overhang will need to be worked down before prices rise further, according to the report.

Zinc remains the metal with the strongest near-term fundamental outlook on the back of acute concentrate shortages. Scotiabank expects prices to average $1.35/lb in 2017 and $1.55/lb in 2018.

Rumours of potential Chinese aluminium smelter curtailments have injected some rare good news into prices, though specifics are still pending. Prices are forecast to average $0.75/lb in 2017 and $0.77/lb in 2018.

Meanwhile, iron-ore prices are expected to fall from currently-inflated levels as the tailwinds of Chinese stimulus begin to fade. Low-cost supply is forecast to edge out higher-cost producers, bringing prices to $55/t in 2017 and $50/t in 2018.

Scotiabank sees Beijing as being in the driver’s seat when it comes to steelmaking metallurgical coal, as its capacity rationalisation strategy (specifically its mine-day policy) impacts the availability of domestic coal. Prices are forecast to average $180/t in 2017 and $120/t in 2018.

Further, gold is expected to trend sideways for most of 2017 and 2018, as rising rates, a stronger dollar, and a generally sanguine investor outlook, despite significant political uncertainty, all pose headwinds for the yellow metal. Prices are forecast to average $1 200/oz in these periods.

Scotiabank points out that precarious speculative positioning will leave crude oil vulnerable to near-term retracement, but the group remains committed to its medium-term outlook with prices forecast to average $58/bl in 2017 and $61/bl in 2018.