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Higher Commodities Forecasts, but Same Long-Term Outlook

Current prices still don't look sustainable.

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Runups in commodity prices and OPEC’s recent production cuts have caused Morningstar’s equity analysts to raise their near-term forecasts, but the long-term outlook is unchanged.

Mined commodities and mining stocks have seen massive gains in 2016. The coking coal price has quadrupled, iron ore and thermal coal have doubled, and copper is up about 35% this year. Demand exceeded expectations thanks to China’s debt-fueled fiscal stimulus. With approximately 80% of China’s steel used for investment-oriented activity, steel demand is particularly sensitive to China’s fiscal stimulus. China’s leading share of commodity consumption means that relatively small changes in demand have outsize impacts on global markets. Markets also experienced short-term supply constraints, including weather-related disruptions in Australia, the Samarco failure, and China’s 276-day rule for domestic coal mines.

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