The latest moves in commodities – and what’s behind them

We are still watching The Bank of Canada and U.S. Federal Reserve policy rates and how they are affecting inflation and commodity prices. On Thursday, the U.S. personal consumption expenditures, or PCE (excluding food and energy costs), increased 0.4 per cent for the month and 2.8 per cent from a year ago, in line with expectations.

The market is now pricing in three rates cuts in the United States in 2024, with the first cut expected in June. The Bank of Canada’s next policy interest rate announcement will be on March 6 and the Fed’s rate-setting committee meets again March 19.

Increasing U.S. crude inventories and the recent announcement from OPEC+ that cuts of 2.2 million barrels per day will be maintained until June are the dominant forces influencing the price of oil. U.S. commercial crude stocks rose by 4.2 million barrels last week, according to the U.S. Energy Information Administration. Oil has had a price floor in the high US$60 range since November, 2021, and is currently around US$80 per barrel. Geopolitical risks are expected to keep that floor in place. The price of oil briefly surged to the US$90 range in late September last year, based on the decision by Saudi Arabia and Russia to extend output cuts of a combined 1.3 million barrels per day through year-end.

The EIA sees gasoline prices decreasing through 2025. In Canada, the average price per litre of regular gasoline is $1.50. The carbon tax portion of that is 14.31 cents per litre, rising to 17.61 cents on April 1. By 2030, that carbon tax is projected to rise to 37.43 cents per litre. In Ontario, Premier Doug Ford recently announced he was extending the 5.7-cent tax cut on gas till at least this coming summer. The government launched that cut in July, 2022, and has extended it several times since.

On Feb. 27, Russia ordered a six-month ban on gasoline exports starting March 1 in order to keep prices stable amid rising demand from consumers and farmers. A similar ban last year was introduced to avert shortages and spiking prices in Russia’s domestic market.

Natural gas prices at the Alberta Energy Co. hub have been holding under $1.80 per gigajoule. Cold weather back in January saw prices spike to $14 per GJ. The Weather Network tells us El Niño is beginning to dissipate, making room for La Niña to emerge, leading to above-average temperatures for the coming spring. Longer term, gas supply management company Gas Alberta sees the price of natural gas rising out to 2027.

Lithium carbonate prices are up 8 per cent since the start of the year but remain at depressed levels last seen in 2021. Even though China registered eight million new plug-in electric vehicles in 2023, up 46 per cent from the prior year, domestic EV demand in China has slowed, causing Chinese EV producers like BYD to start to look abroad for new markets. In North America, Tesla recorded a 38-per-cent year-over-year increase in EV sales in 2023 but warned in January of lower growth expectations for 2024. Lithium production currently exceeds demand and we are seeing forecasts of 2028 before demand again exceeds supply.

On the metals side, gold, silver and copper prices have been flat to slightly up over the last month. On Thursday and Friday the price of gold rose US$50 on the back of the PCE price index data and expectations of Fed policy rates cuts starting in June. The price of gold rises in a falling real interest rate environment. Higher-for-longer rates do not encourage holding gold and silver as the metals pay no interest.

China has now seen five months of a falling manufacturing purchasing managers index. The lower PMI, coupled with a weakening property sector, is being reflected in copper inventories building in Chinese warehouses, up 100 per cent in the past two weeks alone. China’s National Peoples Congress opens on Tuesday with the expectation of more stimulus for their economy.

Lumber prices have been holding in the US$550-US$575 per thousand board foot range this year. The National Association of Home Builders’s most recent data showed U.S. housing starts in January were at 1.33 million units, down 14.8 per cent month-over-month because of a decline in multifamily home starts. Single-family starts decreased 4.7 per cent month-over-month but have risen over the past 12 months by 22 per cent. Single-family starts represent over one million of the 1.33 million starts during the period. Multifamily units (apartments, condos) decreased 35.6 per cent. Lumber production in Canada in 2023 was up 2.4 per cent over 2022.

Conflict in the Middle East is also affecting the price and quantity of tea in Britain as ships are traversing the Cape of Good Hope rather than the Red Sea/Suez canal to avoid risk, adding two to three weeks to travel time and increasing expenses of goods being shipped.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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