U.S. Commodity Markets: What's Hot and What's Not

Cobalt. Concerns about supply have panicked buyers and pushed prices into record territory. Speculators have also moved into the market, further reinforcing upward price momentum. Prices have broken above $40/pound, which, while unsustainable, still means substantial year-over-year increases through 2008.

Hot-Rolled Steel Strip. A weak dollar, lower imports, and U.S. pricing below world levels gives domestic mills some pricing leverage in 2008.

Gas Fuels. Despite a weakening economy, natural gas demand is expected to improve, increasing 1% in 2008. Meeting this growth will be a challenge because of lower Canadian imports and likely LNG price increases in Europe, which will divert LNG tankers to there. In consequence, Global Insight expects the Henry Hub spot prices to be $1/mmBtu higher in 2008.

Propylene. Spot prices are slated for a relatively strong increase, given the rise in energy prices experienced in the fourth quarter of 2007. And even though prices are likely to edge lower during much of 2008, year-over-year comparisons will still show large increases.

Coated Paper and Paperboard. Even with relatively weak demand, plant closures have kept operating rates relatively high, conferring some pricing power to producers. Pushback from buyers, however, will keep price increases very modest until the second half of 2008.

Storage Batteries. Strong lead price increases in 2007 will be factored into battery prices across 2008, as contracts roll over despite relatively lackluster end-markets.

Tin. Supply concerns, specifically exports out of Indonesia, trump weak demand. Spot prices are expected to ease across much of 2008, but year-over-year comparisons will still be large because of the big price increases during the last half of 2007.

What's Not

Stainless Steel. Lower nickel surcharges as contracts roll over during 2008 mean lower stainless steel prices relative to 2007. Prices will actually be fairly stable for much of 2008; large year-over-year declines will reflect price drops recorded from fourth-quarter 2007 into early 2008.

Zinc. The market shifted into surplus during 2007, and this condition looks to hold in 2008. Prices move lower across 2008, but the largest price decline was recorded in fourth-quarter 2007.

Gypsum Products. With real softness in housing construction, wallboard prices have crumbled. Even though prices have fallen sharply over the past six months, we believe the worst is not yet over.

Copper. Weak demand will push copper into surplus in 2008, setting the stage for a drop in prices. The first quarter, however, is likely to see a short covering rally that will produce a short bump in pricing.

Jet Fuels. With oil prices retreating, other refined petroleum product prices will follow. While these corrections will be welcomed, price levels will still be uncomfortably high when compared with prevailing price levels even two years earlier.

Aluminum. Ample production growth and a weak outlook for North America look to soften prices. Prices on the LME may get a temporary lift from a decline in the U.S. dollar, but this will not override fundamentals in 2008. For 2009, however, we are now more pessimistic. A declining Chinese net export position likely means tightening conditions in the short term.

Top Commodity Price Movers in the Coming Year