On the flip side, cotton, nickel and aluminum are typically the worst in the summer and are having a great start to q3, up 15.2%, 9.6% and 1.6%, respectively. Nickel is increasing from environmental licenses potentially impacting supply. Cotton is rising from the drought impacting supplies in India, and according to their government, inventory could be cut by 1/3 bringing output to the lowest in six years. Aluminum is up slightly from anticipated automobile growth in China, which could grow more if gasoline prices stay low.
Commodity prices are expected to remain buoyant Market Realist’s View
Year-to-date, cotton prices have risen 7.4%. They rose at a healthy pace in July after a positive export sales report from the USDA (United States Department of Agriculture). Prices have since retreated to less than $0.71 per pound.
Improved US weather, a sluggish supply, and lower demand estimates by the US government are pressuring cotton futures. The USDA world crop estimates a reduction in cotton production by 1.0 million bales to 96.9 million bales for 2016 and 101.6 million bales for 2017.
Nickel prices surged
The price of nickel (XME), which is used to make stainless steel, hit a one-year high in August and has surged more than 10% in the third quarter. Currently, nickel is trading at around $4.72 per pound. The strong rise in nickel prices was mainly due to supply shortages after the suspension of operations at eight mines in the Philippines.
The Philippine government imposed restrictions on the mining industry that don’t comply with international standards. The closure of these mines has affected 2% of global supply.
After a dismal performance in 2015, aluminum (GNR) has risen 10.3% year-to-date. It touched a 13-month high of $1,688 per ton and is currently hovering at about $1,661 per ton on the London Metal Exchange. Aluminum has been supported by higher demand from the Chinese (GXC) automobile industry coupled with a tightening supply due to the closing of some Chinese production capacities last year.
The long-term demand outlook for aluminum continues to be positive on the back of higher demand from the automobile and transportation (XTN) sector. Aluminum prices could get a further boost if gasoline (XLE) prices remain under pressure.