Metal prices on the rise, Scotiabank reports

TORONTO—A renewed sense of optimism is expected as representatives of the global mining industry gather in Toronto for the annual convention put on by the Prospectors and Developers Association of Canada (PDAC).

This time last year, the prices of most industrial commodities were sitting near cycle lows and sentiment was dour. Since then, prices have risen across the board.

The Soctibank Commodity Price Index rose by 6.4 per cent in January, thanks in no small part to strong performance in the metals and minerals sector, which rose by 9.9 per cent.

Here are the price forecasts for Canadian metal markets:

• Gold: rising rates, stronger dollar and a generally sanguine investor outlook despite significant political uncertainty all pose headwinds for the yellow metal; prices are forecast to average $1200/oz. in 2017 and 2018.
• Copper: supply deficits now expected over the next two years, supporting prices to $2.40/lb. in 2017 and $2.50/lb. in 2018; current rally expected to ease following the resolution of major work stoppages in Chile and Indonesia.
• Zinc: remains the metal with the strongest near-term fundamental outlook on the back of acute concentrate shortages; prices are forecast to average $1.35/lb. in 2017 and $1.55/lb. in 2018.
• Nickel: supply deficits will provide moderate support to prices, which are forecast to average $5.20/lb. in 2017 and $5.00/lb. in 2018, but a chronic inventory overhang will need to be worked down before prices rise further.
• Aluminium: rumours of potential Chinese smelter curtailments have injected some rare good news into aluminium prices, though specifics are still pending; prices are forecast to average $0.75/lb. in 2017 and $0.77/lb. in 2018.
• 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.
• Metallurgical Coal: Beijing is in the driver’s seat as its capacity rationalization strategy (specifically mine-day policy) impacts the availability of domestic coals; prices are forecast to average $180/t. in 2017 and $120/t. in 2018.

For those in mining and metallurgy, there is reason to celebrate, but the price increases for many metals are due to short-term factors that could change quickly.

“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,” said Rory Johnston, commodity economist at Scotiabank.

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

To see more details on the minerals sector and commodity price breakdowns for other sectors of the Canadian economy, read the full Scotiabank Commodity Price Index Report here.