Commodities rebounded in a big way in 2016, with many posting double- and even triple-digit gains. Here’s a look at some of the biggest outperformers, and the commodities that could take their place in 2017:
If 2016 was Zinc…
The metal used in batteries and alloys such as brass was a huge winner in 2016, with prices rising 71 per cent from US 70 cents to as high as US$1.32 per pound. Shuttered mines, minimal investment and a drawdown in existing inventories — to what BMO analyst Jessica Fung called “critical levels” — fuelled 2016’s big move. And the story might not be over yet: With demand heating up, Fung says “there are real fundamental reasons why zinc could outperform or at least continue to do well in 2017.”
…2017 could be Nickel
Nickel jumped 22 per cent in 2016, but developments in the Philippines could be setting it up for more gains in 2017. Newly-elected President Rodrigo Duterte has railed against mining operations in the nickel-rich country, threatening to close down mines that fail to follow strict government standards. An export ban in Indonesia and potentially resurgent Chinese steel demand also bolster the bullish case. TD forecasts nickel prices will climb to $4.90 per pound in 2017, up about 12 per cent from its 2016 year-end forecast.
If 2016 was lithium …
Lithium was one of the hottest commodities in 2016 thanks to the “Tesla effect”— namely, hype about electric vehicles and power storage. Anticipation that heightened demand for batteries will exacerbate a supply crunch helped prices triple near the beginning of the year, reaching a peak in April. Reports suggest lithium contracts for 2017 delivery have been agreed to at levels that are double what they were in 2016, though increased supply as new players enter production could temper gains in 2017.
… 2017 could be cobalt
A lesser-known battery component used in smartphones, laptops and electric cars, cobalt enjoyed relative modest gains in 2016, but could be poised for bigger things going forward. Demand for cobalt is expected to grow by five per cent per year over the next decade, while global supply is constrained by a relatively small number of producers and the concentration of production in the unstable conflict region of the Democratic Republic of the Congo. Any flare-ups in that country could limit supply just as stricter emissions standards and developments in the electric vehicle market boost demand.
If 2016 was thermal coal…
The 127 per cent run-up in prices of coal was the biggest commodity surprise of the year, according to Scotiabank commodity economist Rory Johnston. Prices of thermal coal, the kind used in power generation, rose 77 per cent due in large part to changes in the Chinese marketplace. Many analysts, however, think that story has run its course as China brings more coal mines back online.
… 2017 could be oil
Oil prices rose 45 per cent in 2016, but some observers have high hopes that it can build on that stellar performance. “Oil is something to be excited about,” said Bart Melek head of commodity strategy at TD. Oil was trading around $54 a barrel in late December but Melek, who predicted it would hit $60, doesn’t think it will stop there. “I suspect once there’s confirmation that OPEC and Russia and other key players are actually cutting that oil has room to run still.” Some analysts have said there’s room for oil to hit $80 a barrel in 2017. That could make for plenty of happy investors in Canada.
Financial Post