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Commodity prices and demand on the rise says TD economist

Angela Gismondi
Commodity prices and demand on the rise says TD economist

Commodity prices are trending upward and overall demand will remain healthy moving forward, said TD economist Dina Ignjatovic during her presentation on Commodities Pricing and Global Trade in an Open or Protectionist Framework at the 2017 CanaData East conference.

"Prices have come off their lows and we do expect them to gradually trend upwards," Ignjatovic told the crowd at the 32nd annual construction forecast conference in Toronto. "What happens on the supply side is going to ultimately determine what happens with prices."

Ignjatovic also presented at last year’s conference.

"Back then commodity prices had just started to turn a corner and we said the worst is really in the rearview mirror. I think a lot of that has panned out this year with commodity prices having trended up over the first half of the year," Ignjatovic explained.

Oil prices are sitting around $50 a barrel compared to the beginning of 2016 where it was closer to $30 a barrel.

"So oil prices are definitely giving the overall commodity complex a boost but it isn’t just restricted to oil," said Ignjatovic. "We see precious metals prices up, base metals prices up, lumber prices up, so pretty much a broad based increase across the board."

A few things are driving that trend.

"The first thing is global trading volumes have been on the rise and that just goes to show that demand is picking up," said Ignjatovic. "Commodities account for a lot of goods that are traded around the world."

Overall global growth has performed better than expected largely due to strength in the Euro zone and China.

"In the Euro area we’re seeing growth of over two per cent right now which is double the pace of potential or trend rated growth that has actually really surprised on the up side," said Ignjaotvic. "In China, the first half of the year the economy was growing by about seven per cent."

The U.S. dollar has peaked. It shot up to fairly high levels after the U.S. election in November and stayed high for a while, Ignjatovic explained.

"It has since come off the highs that we’ve seen and not so much because the U.S. isn’t doing well anymore but because other countries are catching up," she noted. "Going forward it will still be elevated relative to where it was a few years ago but overall we do expect to see a little bit of a further decline."

Ignjatovic also touched on oil prices.

"Given where it was in early 2016 at under $30 a barrel, $50 doesn’t seem all that bad," Ignjatovic pointed out. "Inventories are very high but the market is abundantly supplied and has been since 2014 when the oil prices started to collapse. There are things in the works trying to rebalance the oil market but it is a very slow process. Canada has new oilsands production that just started and another one coming online later this year that should also keep production in Canada growing."

While the outlook for lumber demand is quite good and lumber prices in general are expected to trend up over the forecast horizon, there are a few key things that are impacting the lumber market right now including the expired Softwood Lumber Agreement between Canada and the U.S.

"The U.S. was expected to and followed through with implementing some anti-dumping duties on Canadian exports earlier this year," said Ignjatovic. "That decision has been delayed until mid-November and those tariffs that were announced have expired so exports going to the U.S right now are not paying any tariffs. We’re waiting for that November decision. There is some uncertainty there."

Another factor affecting lumber markets are the B.C. wildfires she said.

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