Commodities Lift Off Unsustainable Lows, but Pace Appears Overheated: Scotiabank

April 29, 2016

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TORONTO, ON–(Marketwired – April 29, 2016) –  Scotiabank’s Commodity Price Index lifted off from a more than 12-year low in February, rallying 7.8% m/m in March. While the direction of this recent price activity is in line with Scotiabank Economics’ view, the frenetic pace of these rallies is aggressive based on our reading of the fundamentals. There is a risk of a short-term correction in prices, though we expect commodity prices will rise further as the year progresses.

“That said, it is also unlikely that prices re-test the exceptionally low levels reached earlier this year given that they were also likely the result of speculative momentum,” said Rory Johnston, Economist and Commodity Market Specialist at Scotiabank.

The Oil & Gas Index increased by 26.5% m/m as crude oil lifted off its February lows. West Texas Intermediate (WTI) rose from $26.19/bbl on February 11 to average $37.55/bbl in March. Oil prices are forecast to continue rising: Scotiabank Economics expects WTI to reach $45-50/bbl by year end and average $42/bbl in 2016 before reaching an average of $53/bbl in 2017 and $55-60/bbl by end-2017.

The light sweet inland benchmark continues to test fresh yearly highs ($46/bbl as of writing) but these recent gains are at risk of near-term retracement. “We do not believe that the current pace of appreciation — driven more in our view by financial activity rather than slower-moving fundamentals — is sustainable and prices may fall again before continuing their gradual path back to finding new equilibrium levels,” added Johnston.

The Metal & Mineral Index advanced by 3.2% m/m in March on the back of significant price gains across the board (Iron Ore +19.7% m/m; Copper +7.7%; Zinc +5.4%; and Nickel +5.0%).

Other highlights from the report include:

  • Oil and iron ore prices appear to be getting ahead of underlying fundamentals.
  • Chinese exchanges move to blunt potentially speculative activity in overheated metals markets.

Read the full Scotiabank Commodity Price Index online at:,,3112,00.html.

Scotiabank provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

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