Forecasting can be tough at the best of times.
No one remembers when you’re right, but everyone seems willing to remind you when you’re wrong.
And commodity forecasting, particularly after what has been seen over the past 14 months, is as tough as any asset class to predict right now.
Trying to assess where just one commodity is likely to head in the near-term is tough enough, let alone where they’re they’ll move in the next two years.
And when you’re assessing where 26 individual commodities are likely to move over such a long period, the equation becomes significantly harder.
Collectively, we can see commodity analysts around the world nodding their heads in agreement.
Unperturbed by that mammoth challenge, that’s exactly what researchers at Macquarie Bank have done, producing this excellent flow chart that shows where it believes major commodities currently sit in the price cycle, and where they’re likely to head over the next two years given shifts in supply and demand dynamics.
Here it is.
It’s a beauty, isn’t it?
The prevailing theme is that Macquarie sees the price for most commodities either remaining steady or increasing over the next two years, helping to encourage new supply.
While that bodes well for commodity producers around the world should researchers at the bank be proven right, particularly the diversified miners, not all markets are expected to enjoy such palatable price conditions.
And that includes many of Australia’s key commodity exports.
Look where Macquarie sees iron ore, metallurgical coal, thermal coal and LNG prices over the next two years, Australia four largest goods exports by dollar value.
Not the best of outlooks, either suffering a “severe price decline” or “prices stabilising at low levels”.
While not an ideal outcome for national incomes, the federal government and broader Australian economy, Macquarie is not alone in its view that many of Australia’s major commodity exports will see prices fall in the period ahead.
In the minutes of its April monetary policy meeting, the Reserve Bank of Australia board said that while the recent spike in commodity prices “provided a significant boost to Australia’s national income in the March quarter”, it suggested that the benefit was unlikely to last.
“Iron ore prices had fallen since late March, which suggested that the Australian terms of trade were still likely to decline in the period ahead from their recent highs,” it said.