Prices of gold, oil, steel, iron ore and cokes coal are expected to decline in 2014. The production oversupply, large inventories and relatively weak demand will add to the pressure on many commodities.
For cyclical metal prices, ABN AMRO expects an appreciation as demand for metals will remain relatively high. This is the result of solid international industrial activity, rising production of cars – especially in the US and Asia – and a moderate recovery of the construction sector. Although ABN AMRO expect the global economy to recover – which would have a positive effect on commodity markets – this will most likely not lead to a new commodity boom. These are the main conclusions of our new ABN AMRO Q4 Quarterly Commodity Outlook.
High volatility in energy markets will remain
Hans van Cleef:
As supply is rising only modestly, the risk premium is brought down, and the Fed tapering is postponed into 2014, oil markets are expected to trade within a neutral range during the coming months. Market uncertainty will keep volatility elevated though. In the course of 2014, pressure on oil prices should be building as the oversupply will continue to weigh and the effects of the Fed tapering will be felt. US natural gas could find support due to the rise of seasonal demand. But also thereafter, the economic recovery in the US will keep the comfortable rising trend intact. Nevertheless, the ample supply capacity will prevent an acceleration.
Weak precious metal prices will maintain during this quarter
We continue to expect weakness in precious metals for the remainder of 2013, but the moves will likely be more modest. The main reasons for this is that we have delayed the Fed tapering to March and we see a less substantial recovery of the USD over this period. In addition a downward adjustment in expectations about the US economy could be felt in demand expectations. We expect weakness in the precious metals to continue into the first half of 2014 and the recovery in silver, platinum and palladium prices to start in the second half of 2014. We remain bearish on gold for the entire forecast period.
Easing demand growth for base metals
Over the last couple of months, geo-political tensions (Syria) and macro-economic indicators (such as the stronger US dollar, ‘mini-stimulus’ in China, worries over prospects for demand and the first signs of economic recovery in China) have given base metal price its direction. Aluminium smelters worldwide have to battle high energy costs (especially the small producers), which already made some victims. Currently the copper market is in deficit and for the rest of this year fundamentals in the copper market will remain positive. Nickel and zinc markets will be oversupplied, while demand remain sound. Demand growth will however be relatively low.
Challenging circumstances for ferrous metals
Conditions in the steel sector have turned for the better. Demand in most regions is relative better and prospects are positive for now. However, the steel markets in China en Europe are well-oversupplied and are in desperate need of rebalancing and restructuring. Up till now, we have witnessed some producer discipline in Europe, with production cuts and plant closures, but steel output in China continued to increase strongly. China will continue to source high volumes of iron ore going forward and will remain the biggest iron ore consumer. In coking coal we expect that future supply growth from pipeline projects will outpace the demand growth.
Mixed picture for agriculturals
Weather related news is the main driver for agriculture supply. Crop expectations are crucial for price directions in the short term and therefore have a much bigger impact than demand expectations. Wheat prices picked up recently, while corn and soybean prices continued on a downward trend. The stronger decline in corn prices could result in some substitution from corn to soybean production, but given the outlook of an bumper harvest in the US, still an increase in corn production is expected next year. With production in all three commodities forecasted to exceed consumption we expect prices to weaken further for both wheat, corn and soybeans. With oversupply being reported for sugar and coffee, the upside seems to very limited as well.