Business cycles are set to diverge, with significant price under or out performance expected in a few cases. The analysis is, unless stated otherwise, based on CRU’s in-house research and analysis – carried out by our dedicated team of economists, consultants, market analysts and subject matter experts.
After an unexpectedly strong finish to 2016, Q1 2017 sees some markets cool
Mining stock indices’ performance reflected the H2 rebound in commodity prices by substantially outperforming other sectors. The FTSE 350 Mining Index more than doubled in the 12 months to end February 2017.
CRU’s Market Size (MS) Index (volume x price) increased by 19% in Q4 2016, driven by iron ore and coal prices, but is forecast to decline by 6% in Q1 2017 as bulk material prices cool.
Global GDP to pick up in coming quarters but considerable uncertainty – plan for scenarios
CRU’s latest Industrial and Economic Outlook (“IEO”) forecasts Global GDP growth to pick up in coming quarters (~2.6%) but still run below longer term trend (~3%pa). The sluggish growth in the EU and a slowdown in China and India provides tailwinds to global GDP while driving the pick-up is North America and a return to growth in Russia and Brazil.
Risks and sensitivities chart
CRU economists’ current view of some key medium term risks and sensitivities is compared on the basis of likelihood of occurrence and potential impact – shown in Figure 4. The IEO has considered Chinese growth prospects based on a ‘Japan Scenario’ – based on parallels between China’s current situation and those in Japan prior to the crisis of 1991 to 2005: opaque financial and corporate sectors; lending and investment decisions driven by non-commercial factors; a reluctance to close down poor investments by banks. While less likely than 6 months ago, a Chinese ‘Japan Scenario’ is still the single largest risk factor for world economic growth and metal demand and prices over the next few years.
CRU analysts’ current view of the medium term outlook for a selection of minerals from the whole range of commodities CRU researches is compared with short term actual performance in a two dimensional chart – Figure 5.
The vertical axis looks at short term trends, often influenced by external factors such as political unrest, government policy or weather. The horizontal axis looks at medium term forecasts which are more closely linked to supply demand fundamentals. The current heat chart highlights the short term strength and longer term weakness in metallurgical coal for instance. High level commentary, supported by CRU’s fundamental analysis, for selected materials and metals is provided below. Overall, we expect for business cycles to diverge, with significant price under/outperformance expected in a few cases.
High level commentary:
Industrial and precious metals: