As Year-End Crash Avoided, Barclays Sees Commodity Gains in 2017

  • The outlook is now more positive than for some time, bank says
  • Raw materials to avoid final quarter weakness, Norrish writes

Commodities will probably see a broad-based recovery next year after what’s expected to be an unusually strong performance in the final quarter as demand improves, investors plow funds into raw materials and the dollar shows signs of weakness, according to Barclays Plc.

Raw materials are poised to buck what’s been a trend in recent years for posting losses in the second half, analysts including Kevin Norrish wrote in a report on Thursday, which said that the bank expects fundamentals to improve into 2017. In the final months of 2016, commodities may perform robustly with oil prices poised to move higher, according to Norrish.

“If the past is precedent, then commodity-market participants should consider running for cover around now,” Norrish said. “A year-end in which the price of commodities did not plunge would be rather unusual. Yet this year, we see a reduced likelihood of the typical fourth-quarter collapse.”

Commodities climbed on Thursday after OPEC members surprised financials markets with a tentative agreement to cut production, lifting energy. The LME Index of base metals has risen to the highest level in more than a year as the economy improves in China, helping the Bloomberg Commodity Index to advance in 2016 after five straight years of losses.

“Overall, we think the outlook across commodities is more positive than it has been for some time,” Norrish said. “We expect commodities to avoid their recent pattern of fourth-quarter price crashes.”

Before it's here, it's on the Bloomberg Terminal.