The sputtering Western economic recovery combined with slowing Chinese growth will put downward pressure on commodity prices through the end of 2010, according to IHS Global Insight's Commodity Price Watch Outlook summary for September.
With the Western recovery faltering and material demand subdued, a supply overhang is keeping commodity prices well below pre-recession levels. The expected slowdown of Chinese apparent consumption will cap upward commodity price movements in the immediate near term. As the global recovery gains strength, prices will move higher on tightening supplies through 2011.
With demand weak, carbon steel mills are announcing sizable price increases but actually getting small hikes, or none. Prices for most carbon steel products are likely to see subdued increases in September, small declines in October and sharp drops in the following months. Iron ore prices ahead will exert downward pressure on steel prices as ore prices are officially set to fall 13% in the fourth quarter, and spot prices are looking to fall more.
Scrap prices are at some of the highest levels ever, other than the 2008 spike, yet domestic consumption is extremely low and exports are not strong. Although generation is still subdued, we see scrap as severely overpriced, given decent supply and terrible demand. Looking ahead, IHS Global Insight says 2011 will be a weak year for carbon steel prices, but quite strong for stainless steel. Nickel will be persistently high and ferrochrome is set to soon rise again.
The IHS Global Insight price forecast for ethylene and polyethylene shows declines in the fourth quarter while propylene and polypropylene will flatten or ease a bit. Prices for key monomers and polymers will generally strengthen in 2011 as market fundamentals gradually improve.
Propylene is maintaining a strong premium over ethylene, as low natural gas prices relative to crude oil continue to favor the use of light feedstocks in U.S. cracking operations, resulting in a lower propylene yield. Also, there's been a temporary tightening of polyethylene's supply (particularly low-density polyethylene grades).
Nonferrous metals prices have exhibited strength through the third quarter because of investment interest despite persistent lackluster demand fundamentals. As a group, the six key metals traded on the London Metals Exchange -- copper, aluminum, zinc, lead, tin and nickel-are running 36% higher than their 2009 average.
IHS Global Insight says that, with the Western recovery losing momentum and Chinese apparent consumption growth beginning to wane, prices will move sideways or slightly lower through the end of 2010. In 2011, emerging market growth combined with a strengthening Western recovery will tighten supply and put significant upward pressure on prices.