Commodity prices are trending higher - HSBC

Paul Bloxham, Chief Economist at HSBC notes that overall commodity prices rose 2% in October, to back around their highest levels since mid-2015 as oil prices rose to a 27-month high, with Brent now above USD60 a barrel; most metals prices rose further in October.

Key Quotes

“Commodity prices rose for the fourth consecutive month. Our proxy for the IMF Index rose 2% in October to be 8% higher y-o-y. The index is back to its previous peak for this year (February 2017) and its highest level since mid-2015.”

“A key driver of the increase in commodity prices was the rise in oil prices. The average of the Brent, WTI, and Dubai measures rose 3% in October, to be 18% higher over the past four months. The increase in oil prices largely reflects supplyside developments. These include rising geopolitical uncertainty in the Middle East, expectations of continued curbs on OPEC production, absorption of existing capacity – given underinvestment and field decline from the non-OPEC majors – and a levelling out in production by US shale producers – as current oil prices are not high enough to motivate more new entrants. These supply-side issues, combined with continued modest growth in global demand are expected to lift oil prices further.” 

“Most metals prices also continued to rise in October. Weak global mining investment as well as Chinese policy measures to cut back on high-polluting, inefficient, and unprofitable supply have been supporting metals prices. In October, there were further increases in the price of copper, zinc, aluminium, lead, and nickel. Over the past year, copper and zinc, have been the strongest performers in our index, rising 45% and 41%, respectively. Moving in the other direction, the price of iron ore fell by 13% in October, to be the weakest performer in the index this month, as supply has been bolstered. HSBC’s metals team expect base metals prices to continue to outperform the bulks in 2018.”

“Across the agricultural commodities, meat and sugar prices generally rose in October, while grain prices were broadly steady. Rubber prices fell sharply as global supply continued to be boosted from Thailand and Indonesia.”