We have recently revised our overall US dollar outlook. We now believe that the multi-year US dollar rally has peaked and that it will turn lower. We have laid out our arguments in the publication FX Watch – The dollar rally is over. We expect the Fed to remain on hold this year and only to increase rates in a gradual pace thereafter. In addition, we expect other major central banks (ECB, BoJ, PBoC) to continue easing monetary policy. A weaker US dollar and monetary stimulus by central banks should support investor sentiment and the overall demand outlook for commodities, resulting in higher commodity prices. We expect the CRB index to rally by around 5% for the next quarter and 15% for year-end.Monthly Commodity Update-March 2016.pdf (327 KB)
Energy: Positive momentum continues
The positive momentum of recent weeks triggered a recovery of the oil prices based on a combination of a weaker US dollar, a drop in speculative short positions, and increased hopes to extend the OPEC / Non-OPEC agreement to freeze production growth. During the coming weeks, there is some room for profit taking and focus on lower demand due to seasonal maintenance at refineries. Prices could thus fall back a little in the near term. But on longer-term forecast for a higher oil price, founded on a better balance between supply and demand as well as the lack of US dollar upward potential.
Precious metals: More positive on gold
Our new US dollar view is positive for the outlook for precious metals. Over the recent years, the most dominant driver for gold prices has been the direction of the US dollar. As we are now expecting a lower dollar over the coming years, a crucial headwind is taken away. In addition, US real yields will likely move lower from here which is supportive for gold and other precious metal prices. In addition, the pricing out of Fed rate hikes should also be a tailwind for precious metal prices. As a result, we have become more bullish on precious metals. We expect the cyclical precious metals to outperform gold.
Base metals: Prices recovery will follow an erratic pattern
Oversupply and high stocks in the aluminium market still have to be digested and that has a downward effect on price. Nickel prices are under pressure from moderate activity in the stainless steel sector. However, demand for stainless steel seems to be improving, but the pace will remain low. Copper and zinc prices have done significantly better. From a fundamental point of view these markets are still favourable and prices are able to show further improvements. But sentiment will give prices their direction once disappointing or better macro figures appear from large economies. Thus the path of recovery will follow an erratic pattern.
Ferrous metals: Sentiment has improved, now we wait for demand
Worldwide steel prices have increased. Since the start of 2016, prices in emerging countries (China, CIS & Latin America) have increased by 30% on average. In the US and the EU steel prices gained “only” 8% in the same period. The increase in prices has several causes. Sentiment improved in markets, due to an early, but fragile recovery in the Chinese property sector. Also, announced steel capacity cuts and declining exports of Chinese steel fuelled buoyant sentiment further. The question remains whether the price increases in steel will be sustainable because in our view real end user steel demand is still relatively weak.
Agriculturals: Signs of price recovery have reached the market
Overcapacity and high stock levels are still having a negative effect on prices of agricultural commodities. That said, we see increasing signs of small price recovery. For grains and oilseeds the low price in recent years has to result in lower production for the coming season. Simultaneously, we see that the impact of El Niño now surely has started to appear, especially in the Asian production regions of sugar and coffee, where drought causes disruptions in production.