Negative base view but still neutral on commodity prices

by: Georgette Boele , Casper Burgering , Hans van Cleef

We have downgraded our forecasts for global economic growth. We now expect a global monetary easing cycle to take shape, starting in US before too long. The changes reflect that we take a more negative view on the way the trade conflict will evolve over the coming months. This should weigh on commodity prices.

We also expect investor sentiment to deteriorate and the US dollar to receive safe-haven demand. A somewhat higher US dollar and weaker sentiment are in general negatives for commodity prices.

On the other hand we expect considerably looser monetary policy, which is in general supportive for commodity prices.

Moreover, tighter supplies (in base metals) and (geo)political tensions (oil) should give prices some support.

All-in-all, we remain neutral on commodity prices this year.

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Energy

Oil prices are expected to trade sideways with an average of USD 70/bbl for Brent and USD 60/bbl for WTI in H2 2019.

We have lowered our TTF forecasts for Q4 2019 and Q1 2020. This is based on higher than normal inventories – partly due to increased LNG imports – and mild demand expectations.

US Henry Hub fell under some pressure and dropped below 2.50/mmBtu as above expectations US shale production continues to cap any significant upside potential for now.

Precious Metals

Overall we remain positive on gold prices. We keep our year-end forecast of USD 1,400 per ounce.

We also expect higher silver prices. However, the upside potential is lower due to lower expected cyclical demand. We have downgraded our silver forecasts.

The outlook for platinum prices is less positive. We now expect modest downside this year due to lower auto catalyst demand. A higher gold price should dampen the downside somewhat.

We remain negative on palladium because it is the most vulnerable to the global growth and trade cycle.

Base Metals

The global economic growth downgrades by ABN AMRO Group Economics imply a longer period of sub-trend economic growth. However, we do not expect a recession. All-in-all, this translates into lower growth in demand for metals. We therefore also downgraded our base metals prices forecasts.

In the longer term we remain, however, optimistic over base metals markets. This is especially the case for copper and nickel. For most base metals markets, deficits are expected going forward.

Ferrous Metals

We think that steel prices will remain soft this year. Prices for steel making raw materials (iron ore and coking coal) are still relatively high on supply side issues. As a result, steel mill margins are low. We think iron ore prices will soften during 2019 on abundant supply. Coking coal price will stay elevated on robust demand.

Agriculturals

Wheat prices increased strongly on heavy rain in the US. The favourable supply outlook in the EU and plentiful global supplies will contribute to a softer tone in the market.

Heavy rain in the US prevent farmers from planting corn. While China has to deal with the spread of armyworms, the harvest in Brazil is the highest in history. China will encourage restocking of pigs herds and poultry production.

US soybean planting stalls due to heavy rain, while Brazil harvested biggest crop ever. Hopes have faded for a near-term resolution to the US-China trade dispute. Swine fever in China has decreased demand for soybean.

Sugar availability is still high, but armyworms in China damage sugarcane crops. Export of sugar from Thailand has reached record levels, while in India a bumper sugar production is expected. This will mute a strong price recovery.

Below average rainfall in Ivory Coast reduces the cocoa crop. But grinding numbers are up globally, indicating solid demand. The installment of the proposed floor price by Ivory Coast and Ghana could result in a supply boost.

A large Brazilian coffee harvest pressured prices since 1 January. Chances are high for another large harvest in Brazil next season. Relative weak Brazilian real makes export more attractive. This means that prices will remain soft.