Commodities: Surprising tail winds in 2017 – Westpac

There was a surprising commodities tail winds in 2017 but a lull is likely in 2018 leading to a modest correction through the year, suggests the analysis team at Westpac.

Key Quotes

“A combination of stronger than expected demand and tighter supply conditions has boosted prices in the broad commodity complex.”

“Environmental considerations in China boosted prices for higher grades of ore and coal while the disappointing lift in US crude production helped push WTI prices higher.”

“The lack of response by Australian coal exports to the higher than expect prices is very supportive of the market.”

“We have lifted our near term forecasts with iron ore now around US$70/t at the start of 2018 but easing back to US$57/t by June 2018. Hard met coal prices for June 2018 have been lifted to US$175/t from US$130/t while thermal coal forecasts are now US$84/t, up from US$76/t. For June 2018 our Brent forecasts are now US$57bbl (were US$50bbl) while our base metal index is 9% higher than the November forecast.”