Energy and Metals Outlook

Besides a broad-based slide in the US dollar, robust demand from Europe and China has offered price support for most industrial commodities. Copper – considered a bellwether for the global economy, has rallied in recent weeks on speculation of future price increases. Earlier price gains followed disruptions to output sparked by mine strikes in Chile and flash floods in Indonesia, which caused extensive damage to infrastructure. Aluminium and Zinc have also strengthened, with the former at its highest level in three years and the latter moving above US$3000 just after our survey date for the first time in almost a decade. The revival in base and bulk commodities contrasts with Crude Oil and US Natural Gas, which have dropped 11.5% and 19.6%, respectively, in the year to date. Weakness in these two fuels continues to reflect excess supply and an inventory mountain, which will take time to run down. True, WTI is higher now than a few weeks ago, following news of a drop in US stockpiles. In addition, OPEC, led by Saudi Arabia, pledged in late July to maintain compliance to production restraint. Optimism, though, will be difficult to sustain as we approach the end of the US summer driving season. Certainly, WTI will meet resistance at above US$50/bbl, as higher prices would incentivise US shale producers to raise output further.

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