ABN AMRO Group Economics
Monthly Commodity Update
Commodity Research
July 2015 Market is too negative Commodity prices came under heavy pressure because of concerns that weakness in Chinese equities would have a negative impact on the Chinese economy and of the outlook for metals’ demand. In addition, the Greek debt crisis also clouded the commodity demand outlook. However, we do not expect a major slowdown in the Chinese economy as the Chinese authorities have an enormous arsenal to support the economy. Currently, market sentiment towards Chinese growth is more negative than our projection. Therefore, we expect commodity markets the shrug off the negative vibes and push metal prices (base metals and platinum) prices higher. Meanwhile, we expect a possible Iran-deal and supply glut to continue to weigh on oil prices. Weatherrelated events remain dominant in agriculturals.
Energy: Oil prices rangebound, oversupply still weighs (Click here for the latest update on energy)
For two months already, oil prices have continued to trade within narrow ranges. On one hand, the situation of oversupply has continued to dominate the market. On the other hand, hopes on stronger economic growth has put a floor under prices. The crucial events surrounding the Greek debt crisis and a possible Iran nuclear deal have resulted in speculative trading, but have yet prevented to give direction. While US natural gas prices failed to rally ahead of the summer season, TTF prices appreciated after the Dutch decision to cut gas production from the Groningen field. As a result, we raised our TTF natural gas forecast for 2015 and 2016.
Precious metals: Positive on platinum, negative on gold (Click here for the latest update on precious metals)
The prospect of higher US interest rates and a higher US dollar will be strong headwinds 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. So we remain negative for the coming year. Silver prices remain closely tied to gold’s fate in the near-term. We remain negative on palladium prices for the coming months because of investor liquidation. But we have turned positive on platinum prices because of improving fundamentals and extreme short positions by investors.
Base metals: Mid-year price review forces forecasts down (Click here for the latest update on base metals)
Prices for base metals witnessed pressure during Q1 and to a lesser extend going into Q2. Dollar strength, the cooling down of the Chinese economy, and economic woes in Europe were mostly responsible for this. And still, several hurdles have to be taken going into Q3, of which the Greece crisis and the Fed decision on rates are the biggest issues. We have cut our average forecasts for 2015 by 5% on average. However, from current price levels, we still foresee an uplift in base metals prices in H2. Indeed, from a macro-economic and fundamental point of view, most base metals markets are still in a good shape.
Ferrous metals: Prices slip globally on weak demand, oversupply (Click here for the latest update on ferrous metals)
In a stage where steel demand is still weak, oversupply overhangs the market and excess steel material from China is flooding markets abroad, price pressure in ferrous markets is the result. Some markets have already introduced import measures to halt the relatively cheap inflow of Chinese steel, while others are considering doing so. Protective measures on imports will result in more stable markets going forward. Short term ferrous market prices are expected to remain flat. Long term prices should be able to gain some pace in H2 and in 2016 on re-balancing and renewed steel buying activity.
Agriculturals: The weather determines price direction (Click here for the latest update on agriculturals)
Sentiment in the grains market has been 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 led to price movements in the last weeks. However abundant supplies have led to overall low prices for corn, wheat and soybeans. In softs, the sugar price has fallen sharply 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. For coffee, sentiment is mixed by different output data around the globe, but overall it might be a good crop year. i
decrease by 11% or more
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decrease betw een 5% and 10%
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price movement betw een -4% and +4% k
increase betw een 5% and 10% h
increase by 11% or more
- Short term view: our three-month outlook versus spot rate on 13 july. - Long term view: 2016 avg forecast price versus 2015 avg forecast price.