The natural resources inflection point

Since March 2016 three events have built a floor under commodity pricing. OPEC’s agreement to cut production was one: On 30 November, the cartel reached a firm decision to reduce output by 1.2 million barrels per day. A second key event was the election of President Trump. We expect leadership changes at the Environmental Protection Agency (EPA) and Federal Energy Regulatory Commission (FERC) to support energy and power market development.

Just as significant was the publication in March 2016 of China’s National Development and Reform Commission’s (NDRC) thirteenth five-year plan.

The plan initially targeted coal; illegal mines were forced to close, and the NDRC restricted the number of days that legal coal mines could operate from 330 days per year to 276 days. With Chinese capacity effectively cut from 5.0 billion tons to 3.2 million tons, a price response began globally given the country’s 50% share of global annual consumption. Prices have climbed 85% higher for thermal coal and 290% higher for metallurgical coal through December 2016.

Taken together this triumvirate of developments has helped catalyse an inflection in commodity prices that in our view will likely continue for years to come.

Robin Webhé – The Boston Company, a BNY Mellon company

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