In recent months, prices of several soft commodities rallied due to weather conditions. Gold and silver prices have risen mainly because a weaker US dollar, lower US Treasury yields and some deterioration in investor sentiment. Still, we expect gold prices to weaken in the course of the year based on higher US Treasury yields and a stronger US dollar. On base metals, we have a more positive outlook based on strong Chinese demand. Oil prices have continued to trade within small ranges despite the OPEC production cuts. The 2016 oil price recovery has triggered more US crude oil production. Therefore, the upside seems limited for the coming months. Increased risk of a ‘long’-squeeze made us revise our oil price forecasts lower for H1 2017. As a result, we expect the CRB-index to trade more or less sideways during the coming months, with increased downside risks.Monthly-Commodity-Update-February-2017.pdf (408 KB)
Energy: Oil prices: Downside risks increased
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After trading in a relatively narrow trading range for two months, we believe that near-term downside risks have increased. The IEA shows that OPEC is to achieving 90% of its agreed production cuts, but the market has failed to push oil prices out of this trading range. The rising US crude production and near record high crude inventories continue to cap the upside of oil prices. With hedge funds and investors being excessively positioned for price gains, the risk of a large profit taking wave is building. If such a move were to occur, a drop towards USD 45/bbl could be seen. Therefore we have lowered our H1 forecasts for Brent and WTI.
Precious metals: Gold price rally behind us
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Gold prices have rallied since mid December. The turnaround in prices coincided with the peak in US Treasury yields and the US dollar index (in December). Recently, the rally in gold prices has run out of steam. It fell short of breaking above the 200-day moving average which is layered around USD1,262 per ounce. This failure signals that the overall longer-term picture remains negative. The US dollar and US Treasury yields have moved higher as well and overall investor sentiment has also improved. These dynamics are negative for gold and will probably push gold prices lower in course of H1 2017.
Base metals: Sentiment in base metals markets remains good
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Aluminium prices have increased on rumours that 30% of Chinese aluminium smelting capacity could be cut. But given the abundant supply, we think aluminium prices should stay soft for the rest of Q1. In copper, mine disruptions tightened refined supply, and triggered an upward price reaction. Copper demand will remain good, and this could be the driver to push prices higher. Tightening concentrate markets in nickel and zinc will send refined prices up. On balance, we expect deficits during 2017 for both nickel and zinc. A stronger dollar remains, however, a headwind for base metals prices.
Ferrous metals: Iron ore price increase on speculation
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China returned from the New Year Holiday and since then, iron ore prices continue to strengthen. The reason for the price increase was mainly speculation. Global availability of iron ore is plentiful. The iron ore inventories at Chinese ports are still high and at Chinese steel mills the iron ore inventories are elevated. This is mainly due to good sentiment over the last couple of weeks on Chinese steel demand going forward. We foresee lower iron ore prices during the rest of Q1. Iron ore availability will remain high, output is likely to increase further, while demand is set to increase, but at a slower pace.
Agriculturals: Corn demand on the rise: potential for growth
Adverse weather conditions in Brazil may endanger the 2017 the Robusta coffee crop. This would be the third year in row that Brazil will suffer from drought, affecting the coffee crops. The global Arabica production on the other hand could reach a record high this year according to ICO data. However, production is likely to be outpaced by demand leading to a deficit. Corn prices could be on the rise. With low prices and a larger demand, due to ethanol makers ramping up production, corn prices could rise. Favourable harvesting conditions could lead to an abundant soya harvest for, putting pressure on soya prices for the coming year.