Metal markets in 2017 will see an uptrend as big players like China and India are investing in developing infrastructure that will drive the metal markets up with a balancing supply side as well. Prices for most commodities, including oil, are forecast to rise in 2017 as a long period of declining prices appears to be bottoming out, according to the October Commodities Markets Outlook.
According to World Bank, oil prices are forecasted to rise to $55 per barrel in 2017 from $43 per barrel in 2016 as markets readjust after an era of abundant supply that outpaced demand. Energy prices, which also include coal and natural gas, are forecasted to jump 24 percent in the coming year. The decision in September of the Organization of the Petroleum Exporting Countries (OPEC) to resume limiting oil production is another important factor behind the higher price forecast.
According to our research, the prices of metals are projected to rise more sharply than expected in 2017 due to rapid mine closures ahead of schedule. However, a further growth slowdown in China could weigh on metals prices. Metals fell 9 percent this year, but we expect them to show an upward trend in 2017. However, precious metals prices are expected to fall in 2017 as appetite for safe-haven buying ebbs with rising interest rates. Gold is expected to dip in 2017.
However, if the China’s growth increases coupled with India’s growth, the metal prices would shoot upwards. As compared to China, India will be better positioned simply because it has huge domestic demand which is the biggest asset as even in global slowdown India is more insulated as compared to other countries. Moreover, for the last few years the growth in China drove the metals markets, but we feel in 2017 India could play a major role in generating demand for metals due to the massive investment by the government in developing infrastructure. Billions of dollars of investment by the Adani group in Australia is one such trend. Initially, Chinese companies were buying mines in Australia, Africa and other supplying countries, but now we see Indian companies also investing in buying mines across the globe. This trend clearly shows that energy and metal demand is going to rise in India and the government wants to make the supply secure in the near future.
Another key trend is the growth in steel demand. The global steel market is suffering from insufficient investment expenditure and continued weakness in the manufacturing sector. In 2016, while we are forecasting another year of contraction in steel demand in China, slow but steady growth in some other key regions like India, NAFTA and EU is expected. Growth for steel demand in all markets except China is expected in 2017.
Base metals did lose their upward momentum in December but we are likely to see an upward movement as the rallies try to resume. The uncertainties surrounding the investment case for the base metals are far less grave now than they were at the end of the preceding 3-4 years. One can easily look at a bullish outlook in 2017.
In India, the year 2017 is very crucial for the government which has to deliver across various sectors. We expect that the boom in infrastructure would give rise to tremendous demand for base metals. As base metals are the key to the foundation of any metal, the spurt in economic activity would give a boost to the base metals market in India.
To summarise, overall we expect to see a positive trend in the metal prices in 2017. These would be mostly driven by the European, Chinese, Indian and the APAC countries.
(The author is Chairman, AMIDT Group)