COMMODITY TRENDS

François Dupuis, Vice-President and Chief Economist • Mathieu D’Anjou, Deputy Chief Economist • Carine Bergevin-Chammah, Economist

Desjardins, Economic Studies: 514-281-2336 or 1 866-866-7000, ext. 5552336 • desjardins.economics@desjardins.com • desjardins.com/economics

NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2018, Desjardins Group. All rights reserved.

Uncertainty Takes Over

ECONOMIC STUDIES | NOVEMBER 28, 2018

#1 BEST OVERALLFORECASTER - CANADA

HIGHLIGHTS

f Oil prices have gone down considerably since October. Increased production from the members of the Organization of the Petroleum Exporting Countries (OPEC), Russia and the United States, along with the emission of exemptions for sanctions against Iran, has made for an adequate oil supply on the market. That significant boost to the supply, coupled with fears of lower demand in 2019, has caused oil prices to plunge more than 25% since October. If OPEC keeps up its current level of production we are likely to see an even greater surplus on the oil market. Despite U.S. pressure on Saudi Arabia to keep prices low, OPEC should slow production down in the coming months. We now predict that the WTI (West Texas Intermediate) price per barrel will be US$65 and US$66 in 2018 and 2019 respectively.

f The price of natural gas has soared more than 40% since October 1st. Despite strong production, inventories closed the storage injection season at their lowest level in 13 years. Colder than usual weather has raised fears that demand could be strong this winter, which would increase pressure on inventories that are already limited. All those conditions mean that the price of natural gas could be more volatile

and more dependent on the weather. We are predicting US$3.10/MMBTU (Million British Thermal Units) for 2018 and US$3.30/MMBTU for 2019.

f Industrial metals have still not rallied from their drop in May. U.S. protectionism and signs that the world economy is weakening are putting downward pressure on the LME (London Metal Exchange) index. Imports of industrial metals from China have gone down, but the inventories listed by the LME are also down, indicating strong demand from elsewhere. The LME index should be 3,150 on average in 2018 and 3,275 in 2019.

f Increased downward risks have boosted the price of gold recently, but that may be only temporary as the Federal Reserve should continue its monetary policy tightening. Gold prices should stay at around US$1,200 per ounce in 2019.

f Lumber prices are still going down; they are now at around US$340/tbf (thousand board feet). The U.S. residential market is slowing and there is growing uncertainty about how strong the demand will be.

MAIN FACTORS TO WATCH

f The United States and China are currently in negotiations over their trade disputes. An agreement between those two countries, reversing this year’s tariffs, could reduce worries and shore up economic growth forecasts for 2019. The prices of industrial metals and oil would certainly react upwards, and gold would probably go back down.

f The OPEC meeting on December 6 may give a better indication of how much its members will produce in 2019, which should have an impact on oil prices. Exemptions for the sanctions against Iran will only be in place for six months. It remains to be seen whether they will be renewed, or whether those countries will have to cut down their imports of Iranian oil even further.

ECONOMIC STUDIES

2NOVEMBER 2018 | COMMODITY TRENDS

Main Commodity Trends

INDUSTRIAL METALSIndustrial metal prices are on a downswing

LME: London Metal ExchangeSources: Datastream and Desjardins, Economic Studies

Index

5001,5002,5003,5004,5005,5006,5007,5008,500

5001,0001,5002,0002,5003,0003,5004,0004,5005,000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

LME index (left) Inventories of six main metals (right)

In thousands of tonnes

OILIf OPEC does not cut production, the market could wind up with serious surpluses in 2019

OPEC: Organization of the Petroleum Exporting Countries; * International Energy Agency (IEA) outlook assuming steady OPEC production.Sources: AIE and Desjardins, Economic Studies

85

88

91

94

97

100

103

-1.5-1.0-0.50.00.51.01.52.0

2012 2013 2014 2015 2016 2017 2018 2019

Surplus or deficit (left) Global consumption (right) Global production (right)

Millions of barrels/day Millions of barrels/day

Forecasts*

COMMODITIESThe energy component has declined since October

Sources: Datastream and Desjardins, Economic Studies

Bloomberg Commodity Index and its components

Jan. 2018 = 100

80

85

90

95

100

105

110

115

120

125

JAN. FEB. MAR. APR. MAY. JUN. JUL. AUG. SEP. OCT. NOV.

Index Energy Industrial metals Precious metals Grains

2018

GOLDGold is still weak, while the U.S. dollar is holding steady

Sources: Datastream and Desjardins, Economic Studies

Index

1,0501,1001,1501,2001,2501,3001,3501,4001,4501,500

889092949698

100102104

2016 2017 2018

Trade-weighted U.S. dollar index (left) Gold prices (right)

US$/ounce

NATURAL GASLow inventories and colder than usual weather have pushed up the price of natural gas

MMBTU: Million British Thermal UnitsSources: Datastream and Desjardins, Economic Studies

Natural gas in the United States

In billions of cubic feet

0

1

2

3

4

5

6

-1,000-750-500-250

0250500750

1,000

2013 2014 2015 2016 2017 2018

5-year average spread in stocks (left) Price (right)

US$/MMBTU

OIL2018 gains in oil prices have been wiped out

WTI: West Texas Intermediate; WCS: Western Canadian SelectSources: Datastream, Bloomberg and Desjardins, Economic Studies

Oil prices

US$/barrel

0102030405060708090

100110120

2013 2014 2015 2016 2017 2018

WTI Brent WCS

3NOVEMBER 2018 | COMMODITY TRENDS

ECONOMIC STUDIES

SPOT PRICE

Nov. 28 -1 month -3 months -6 months -1 year Higher Average Lower

IndexReuter-CRB (CCI) 403.2 -3.3 0.9 -8.4 -4.5 441.0 418.9 394.0Reuters/Jefferies CRB 179.9 -8.0 -6.2 -11.5 -5.9 206.4 194.7 179.6Bloomberg Commodity Index 81.1 -4.5 -2.7 -10.8 -6.4 91.6 86.6 81.1Bank of Canada 381.4 -7.4 -15.9 -25.3 -13.7 510.4 456.1 376.5

EnergyBrent oil (US$/barrel) 60.7 -21.2 -20.8 -20.6 -4.6 85.8 72.2 58.9WTI oil (US$/barrel) 51.3 -24.1 -25.1 -24.5 -11.5 77.4 65.7 51.3Gasoline (US$/gallon) 2.54 -10.6 -10.2 -14.3 0.2 2.96 2.73 2.45Natural gas (US$/MMBTU) 4.26 33.8 49.4 45.0 38.6 4.84 2.96 2.55

Base metalsLMEX 2,855 -3.1 -4.8 -14.3 -11.0 3,500 3,175 2,820Aluminium (US$/tonne) 1,921 -3.1 -9.0 -14.8 -8.0 2,541 2,123 1,908Copper (US$/tonne) 6,155 -0.8 0.3 -10.3 -9.2 7,331 6,598 5,759Nickel (US$/tonne) 10,700 -9.6 -21.3 -27.3 -5.2 15,688 13,166 10,700Zinc (US$/tonne) 2,514 -7.0 -1.2 -17.5 -20.9 3,606 2,976 2,284

Precious metalsGold (US$/ounce) 1,213 -2.3 0.3 -6.6 -6.3 1,359 1,271 1,179Silver (US$/ounce) 14.3 -2.8 -4.2 -14.4 -16.4 17.5 15.9 14.0Platinum (US$/ounce) 843 2.2 4.7 -7.2 -11.7 1,020 890 772Palladium (US$/ounce) 1,143 4.6 19.9 16.9 12.9 1,178 1,010 849

Other commoditiesLumber (US$/tbf) 342 -1.2 -24.2 -40.8 -21.9 582 469 337Pulp (US$/tonne) 1,430 3.6 5.1 10.4 23.3 1,430 1,295 1,160Wheat (US$/bushel) 5.23 5.7 6.7 -5.8 23.6 6.77 4.88 4.14Corn (US$/bushel) 3.28 -1.5 8.3 -12.8 5.8 3.78 3.35 2.91Soybean (US$/bushel) 8.25 6.2 7.1 -17.9 -13.6 10.33 8.97 7.45

CRB: Commodity Research Bureau; CCI: Continuous Commodity Index; WTI: West Texas Intermediate; MMBTU: Million British Thermal Units;LMEX: London Metal Exchange Index; tbf: thousand of board feetNOTE: Currency table base on previous day closure.

TABLE 1Commodities

VARIATION (%) LAST 52 WEEKS

2016 2017 2018f 2019f

Target: 65 Target: 66(range: 65 to 66) (range: 55 to 80)

Target: 3.10 Target: 3.30(range: 3.00 to 3.15) (range: 2.70 to 4.00)

Target: 1,265 Target: 1,205(range: 1,260 to 1,270) (range: 1,125 to 1,325)

Target: 3,150 Target: 3,275(range: 3,135 to 3,165) (range: 2,900 to 3,700)

TABLE 2Commodities prices: History and forecasts

ANNUAL AVERAGE

WTI oil (US$/barrel) 43 51

LMEX index—base metals 2,375 2,969

f: forecasts; WTI : West Texas Intermediate; MMBTU : Million British Thermal Units; LMEX : London Metal Exchange IndexSources: Datastream and Desjardins, Economic Studies

Natural gas Henry Hub(US$/MMBTU)

2.55 3.02

Gold (US$/ounce) 1,248 1,259