Commodities make a comeback

Raw-materials prices rose sharply in 2017 – and they have made a strong start to 2018, too.

878_MW_P06_Markets_Bottom

Oil is now nudging $70 a barrel

Christopher Ames

Raw-materials prices rose sharply in 2017, and they have made a strong start to 2018 too. The Bloomberg Commodity Spot index, a broad gauge of the sector, has jumped to its highest level since 2014, and the outlook remains favourable. Factories across the world are warning that they are struggling to keep up with demand now that the global economy is finally beginning to fire on all cylinders, says Fergal O' Brien on Bloomberg. Global growth could reach 4% in 2018, reckon analysts at JPMorgan Chase, while its worldwide composite gauge of manufacturing surveys is at its highest level since 2011.

On the supply side, oil and mining groups have cut spending to lower debt and return cash to shareholders; in the oil market, sentiment has turned more bullish now that the pact between oil-cartel Opec and Russia to cut output to mop up the glut appears to be holding. Oil, now nudging $70 a barrel for the first time in three years, is a large part of most commodity indices, reinforcing the growing confidence among commodities investors in general.

The usual cyclical lags are also playing a part, says Jon Yeomans in The Daily Telegraph. Chinese demand is pivotal for metals, and a clampdown on credit there in 2014 squeezed growth and dented miners' profits. Scarred by that experience, miners have cut back on exploration, so new supplies won't arrive quickly.

China is again trying to temper debt growth, so its appetite for raw materials will fall this year, while continued US growth could bolster the dollar, always a headwind for commodities as they're priced in dollars. But these factors are unlikely to outweigh robust global growth and tight supply, so the best guess is that the commodities upswing of the past 18 months will endure in 2018.

Recommended

Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Why investors should consider adding Glencore to their portfolios
Share tips

Why investors should consider adding Glencore to their portfolios

Commodities giant Glencore is well placed to capitalise on rising commodity prices and supply chain disruption, says Rupert Hargreaves. Here’s why you…
13 May 2022
How to invest in the multi-decade boom in industrial metals
Industrial metals

How to invest in the multi-decade boom in industrial metals

The price of key industrial metals has already begun to rise. The renewable energy transition will take them higher, says David Stevenson. Here's how …
6 May 2022
Should you buy BP shares? The oil giant looks cheap, but approach with caution
Energy stocks

Should you buy BP shares? The oil giant looks cheap, but approach with caution

With the oil price spiking, BP shares look cheap on a price/earnings ratio of just over seven. But do they deserve a place in your portfolio?
5 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022