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CRU sees commodity prices rising by an average of 8 percent in 2016, with tin and palladium being the hottest metals as far as price increase is concerned.
Commodity prices will rise by 8 percent in 2016 over benchmark 2012 prices, with tin and palladium seeing the biggest increases, CRU said in an outlook published recently.
“This is a small downward revision from the view last quarter when CRU expected prices to increase on average by 9.5%,” CRU analyst Peter Ghilchik said in the report.
CRU regularly studies more than 75 commodities across the mining, metals and fertilizer sectors. For its latest study, it analyzed 24 separate commodity price forecasts, from steel to raw materials to base metals to aluminum and fertilizers.
The study compiles forecasts for calendar year 2016, ranking commodities in a heat chart based on expected percentage changes in price. CRU warns that a higher forecast for 2016 does not mean a steadily rising price in the intervening period. Nor does a lower price outlook for 2016 mean that prices will fall in a steady manner.
With a price rise of 8 percent, CRU said its outlook for commodities is warm until 2016. “The other price trend is for greater divergence in price expectations,” Ghilchik said, explaining that CRU expects to see some significant rises while other commodities languish.
CRU anticipates that prices will rise in 13 markets — tin, palladium, zinc, uranium, alumina, aluminum, platinum, lead, nickel, met coke, vanadium, phosphate DAP and cobalt — in 2016. Eleven markets — iron ore, gold, manganese, copper, coking coal, potash, ammonia, urea, silver, sulphuric acid and sulphur — are expected to fall in price in 2016.
“This is a significant downgrade as CRU previously had higher commodity price forecasts outweighing lower price expectations by a 2:1 ratio,” Ghilchik said.
“The greatest medium term supply constraints will occur in the palladium, tin, zinc, uranium and alumina markets. For commodities with a looming supply constraint the current slowdown in development activity makes a tighter market by 2016 more certain,” he added.
CRU said that tin remains a supply-side story and sits on top of the heat chart. Tin’s production and consumption is likely to be lower in 2012, but a price resurgence is expected in 2013.
“The tin market is increasingly under-supplied and there is a dearth of new high quality projects in the pipeline to replace falling output from current mines,” the study found. “The few projects that are due to come on stream will fall far short of delivering the volume of metal required to meet forecast demand. The tin market will remain exceptionally tight through to 2016, which will be reflected in prices.”
In the case of palladium, CRU anticipates that Russian stockpiles will be depleted by 2014, “putting the market swiftly into deficit with upward pressure on the price.”
Other precious metals are not expected to outperform as a group, according to the study. “CRU does not foresee a collapse in demand for safe haven commodities in the short term but nor does it expect to see another gold bull run. By 2016, traditional safe haven commodities of gold and silver should lose some of their lustre, with silver being the most at risk, moving from ‘Warm’ in 2013 to ‘Freezing’ by 2016.” Freezing means a price decrease of greater than 15 percent in 2015. Warm means a price increase of 5 percent to 15 percent in 2016.
Metals traded on the London Metal Exchange, with the exception of copper, are expected to regain some of their recent price losses by 2016, the study indicates.
“CRU expects to see an average 30% price increase for the six main LME traded metals by 2016. The copper story is the exception to this,” the study states. “The market for copper is expected to remain tight through to 2014 but CRU sees a significant bulge in new capacity due to come online towards the end of the forecast horizon which could push the copper market into surplus and depress prices. This is somewhat similar to the current story in the nickel market, which is in surplus after a surge of new capacity finally came on-stream just as Chinese demand faltered.”
Fertilizers came in at the bottom of the heat chart, in the freezing zone, as their prices are expected to fall due to excess new capacity that has come up in recent years, primarily in low-cost regions.
The fertilizer “sector has enjoyed high prices and margins recently and therefore CRU does not expect the fall in fertilizer prices to be disastrous for the sector. The expected decline would bring fertilizer prices in line with CRU’s long run averages expectations.”