Commodity Trends

It’s Been a Tough Summer for Commodities

August 23, 2024

Jimmy Jean, Vice-President, Chief Economist and Strategist
Marc-Antoine Dumont, Senior Economist • Florence Jean-Jacobs, Principal Economist

Highlights

The strike that brought Canada’s major freight railroads, CN and CPKC, to a halt on August 22, has sparked concern about supply disruptions and unpredictable costs associated with domestic and cross-border shipments of oil, grains, forest and mining products.
In July, the Organization of the Petroleum Exporting Countries and its partners (OPEC+) exceeded its production target by more than 0.9 MMb/d (million barrels per day). The lack of cohesion between members comes as the cartel prepares to phase out its voluntary cuts in October. As a result of this outsized output and the United States’ record production of 13.3 MMb/d, global oil supply is stronger than expected. Meanwhile the opposite is true for demand, with forecasts having been revised downward due to China’s lacklustre economic performance. We’ve therefore revised the year-end target for WTI (West Texas Intermediate) to US$82 per barrel (graph 1). In Canada, oil producers are already benefiting from the opening of the Trans Mountain Pipeline External link., which has boosted their export capacity and reduced their dependence on US refineries. While the freight rail strike could drive up the price difference between WCS (Western Canadian Select) and WTI in the near term, the new pipeline should keep the gap from widening too much.
Sluggishness in China’s manufacturing sector, evidenced by a third consecutive contraction in the country’s manufacturing PMI in July, has negatively affected all industrial metals (graph 3). For copper, the decline represents an anticipated correction as the peak attained in May was higher than what the fundamentals would support. As interest rates come down in the coming quarters, demand for base metals should grow, particularly in advanced economies. However, China’s property market slump and ineffective stimulus measures could curb the need for certain metals that are more sensitive to this sector. These include iron ore, which has also seen its price held back by weak commercial construction in the United States.
The price of gold soared to an all-time high of US$2,526 per ounce this week (graph 4). It continues to be driven by the economic and financial uncertainty spurred by the US jobs report for July and by escalating tensions between Iran and Israel. Gold holdings in exchange-traded funds (ETFs) have risen by 3% since mid-April, signalling increased investor appetite for safe-haven assets. Interest rate cuts should also be a boon to the price of gold in the coming quarters. That said, the price is currently very high and could come down a little in the very short term.
Lumber prices have continued to falter, mainly because of anemic residential construction in the United States, which dwindled in July due in part to Hurricane Beryl. This situation could persist for some time as uncertainty surrounds the US economy. Supply exceeds market demand despite the recent closures—both temporary and permanent—of some mills. Low selling prices are exacerbating financial difficulties for Canadian lumber producers, especially in British Columbia and Quebec. To make matters worse, on August 13, the US Department of Commerce increased duties on Canadian softwood lumber from 8.05% to 14.54%, sparking outcry from the Canadian government External link.. The new rate will be applied retroactively to exports made in 2022 and will apply to new exports from companies that were subject to the Department of Commerce’s reviews. As for pulp and paper, the price index has been stable for nearly two years (graph 5).
Agricultural commodity prices have continued to gradually decline and it’s hard to know when they’ll bottom out (graph 6). Corn and soybean prices fell sharply, reaching their lowest levels since 2020, due in part to elevated production in Brazil and favourable weather in the US Midwest. Competition between exporters, weak global demand and expectations of strong yields in North America are weighing on wheat prices. Low grain prices are impacting international fertilizer prices, most of which are stagnating at relatively low levels. This situation is expected to persist according to the Food and Agriculture Organization of the United Nations External link., although it also noted that fertilizer prices are sensitive to unexpected shocks in energy prices.

Scenario Adjustments

Energy: Oil prices revised downward.
Base metals: No change.
Precious metals: Prices revised upward.

Main Commodities

Commodities Prices

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NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively.

IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.