ABN AMRO Group Economics
Monthly Commodity Update
Commodity Research
August 2015 Nervousness feeds volatility Developments on Chinese stock markets have triggered market fears about the pace of the country's economic slowdown, with a clear impact on commodity markets. Although the sharp stock market correction adds downside risks to the economy, these should not be overstated. Recent macroeconomic data point to economic stabilisation on the back of large-scale easing measures. Still, the authorities’ policy reaction to the stock market correction poses questions on their reform commitments. Although China faces several downside risks, it has large buffers and the authorities have many tools at their disposal, so we expect the slowdown to remain gradual. Commodity prices dropped reflecting market worries on the demand outlook on top of the existing (over-)supply issues. The CRB index fell to the lowest level since May 2003, so even below 2009 crisis levels. We expect that we have seen most of the downward correction and expect commodities to find a floor in the coming (volatile) weeks.
Energy: Oil heading for Jan lows; expected to stay low for longer
ABN AMRO price expectation 3-month view
(Click here for the latest update on energy)
long-term view
Brent
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WTI
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Negative market sentiment, record high OPEC oil production, continued high US crude production and disappointing demand proved to be a potent cocktail to triggering another wave lower for oil prices. The double dip in oil prices is negative for oil producers and therefore, bad news for oil (sector) investments. However, it is a positive for oil consumers, which continue to benefit from low prices for longer. The large oil oversupply, as a result of the battle for market share, is expected to remain for longer. That is why we lowered our 2016 oil price forecasts for both Brent and WTI. The downward risk of disappointing demand remains.
Nat. gas (HH)
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Precious metals: Downward revisions in forecasts
Nat. gas (TTF)
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(Click here for the latest update on precious metals)
Gold
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Silver
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Platinum
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Palladium
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CRB Index
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Aluminium
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Copper
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Nickel
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Zinc
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The prospect of higher US interest rates and a stronger US dollar is a major headwind for precious metals prices. It is likely that in such an environment investors will liquidate speculative positions in precious metals. Gold prices will be the most negatively affected in our view. Silver prices remain closely tied to gold’s fate in the near-term. The negative spillover effect of lower gold prices on other precious metal prices signals that investor liquidation has further to go. This implies that price weakness in cyclical precious metals has further to go as well. We expect a recovery in cyclical precious metals’ prices to arrive later.
Base metals: Metal prices distress driven by sentiment (Click here for the latest update on base metals)
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Persistent worries over the state of the Chinese economy are weighing on prices, causing confidence in demand to take a beating. Over the past couple of weeks the catalysts have been the Chinese stock market crash and the country’s weaker PMI manufacturing data. The summer lull and strengthening US dollar also added to price pressure. In our view, recent declines were too steep and were mainly caused by shifts in market sentiment, rather than big changes in underlying fundamentals. Given our positive outlook for the global economy, we expect base metal demand growth to remain at least stable during 2015.
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Ferrous metals: Troubles for the steel industry
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(Click here for the latest update on ferrous metals)
Steel (HRC)
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Iron ore
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Coking coal
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Wheat
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Corn
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Soybeans
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Sugar
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Arabica Coffee
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Cocoa
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The outlook for steel markets continues to be grim. Global steel prices have lost 24% since the start of this year. Chinese exporters are keeping EU and US markets well supplied. In order to protect the domestic market against an overabundance of cheap Chinese steel, the US and EU have already taken some restrictive import measures. But too much steel is still the main problem. In our view, global steel prices will continue to be subdued, and with many steel mills already in the red, the risk of defaults are on the rise. And with the persistent troubles in the global steel industry, there is no reason to source too much steelmaking raw materials.
Agriculturals: Weather or not (Click here for the latest update on agriculturals)
Sentiment in the grains market has been still mostly dominated by weather-related issues and news about crop progress in the last weeks. Heavy rainfall in the US, dryness in Europe and good circumstances in Russia have driven prices. Lower opening stocks for corn and soybeans lead to a little change in price forecasts. In softs, sugar and coffee prices remain at low levels due to abundant world supply and a weaker position of the BRL. The cocoa price have been still in grip of weak Ghanese production data. Also a lack of rainfall could put production under further pressure.
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increase by 11% or more
- Short term view: our three-month outlook versus spot rate on 10 August. - Long term view: 2016 avg forecast price versus 2015 avg forecast price.