The past month has seen a rally in many parts of the commodities complex, owing to the signing of the first phase of a trade deal between China and the US boosting equity markets and risk appetites, states analytics and forecasting organisation Oxford Economics.

In its latest commodity price forecast, it says precious metals led the way higher, while iron-ore and the base metals prices have also rallied.

“Iron-ore and gold prices are currently up 6% month-on-month, while copper is up 2% and aluminium 1% month-on-month.

“However, oil prices were very volatile owing to fears about a US and Iran military conflict, down 1% month-on-month,” says the global forecaster.

Oxford Economics further reports that Brent oil prices moved above $70/bl in early January, as a US drone strike killed an Iranian general in Iraq and Iran responded with its own missile attacks on US bases.

However, the impact on prices was fleeting.

“We still expect the global oil market to be oversupplied in the second half of the year and next year, which will limit the scope for higher prices even during periods of heightened political risk,” Oxford Economics says.

The Organization of the Petroleum Exporting Countries group is still acting together to underpin oil prices, but spare capacity is building as Saudi Arabia deepens its cuts. The group will meet again in March to agree the next stage in its rebalancing plan, while an extension to the current cuts will be needed to avoid the market moving back into oversupply.

Base metal markets have been boosted by increased risk appetite, but fundamental drivers remain important in differentiating trends across the commodities complex. For example, aluminium prices have edged higher despite improved Chinese manufacturing data and car sales.

“With the country set to boost production significantly this year, aluminium’s reluctance to follow other markets higher is understandable.

“Zinc, on the other hand, rose by a more substantial 4% month-on-month, reflecting decent demand from the construction and steel sectors.

In terms of the broader industrial metals complex, palladium prices are soaring – jumping by 37% month-on-month – with the switch away from diesel cars causing a market dislocation,” Oxford Economics points out.

Iron-ore prices also have had a strong start to the year, owing to an increase in demand – as mills have been restocking before the Chinese new year. Similarly, steel prices in the US and the European Union have been rising as both production and imports contracted significantly in both regions in November, while demand picked up after the holiday period.

Oxford Economics remains bearish on ferrous metals this year, as demand is likely to remain lacklustre, while a surge in iron-ore supply this year will weigh on prices.