Prices of political commodities drift

Transcription

1 Monthly Commodity Insights price forecasts for commodity markets Sector Advisory Prices of political commodities drift ABN AMRO Group Economics November 2018

2 1 All commodities Energy / Precious / Industrials / Agri Prices of political commodities drift Casper Burgering Economist casper.burgering@nl.abnamro.com index Prices of oil and metals were under pressure in the past three months, with a steep drop in nickel and oil. Political sensitive commodities especially those related to the USChina trade tensions react swiftly on trade war news. Especially prices for industrial metals (aluminium, copper, steel), precious metals (gold, silver, platinum, palladium) and agricultural commodities (wheat, corn, soybean) tend to respond strongly on trade news with increased price volatility. We think that as soon as the trade war turmoil eases, positive fundamental drivers in most commodity markets will dominate price trends again. The potential of a trade deal on the short term between the US and China are, however, slim. This means that the US will continue its antidumping trade policies and implement stricter trade related rules going forward. By this, imposed tariffs could jump to 25% on 1 January 2019, affecting global supply chains significantly. To counter negative impact on its economy, China is expected to introduce more economic stimulus. In the mean time, hopes are pinned on the G20 summit in November, where Trump and Xi Jinping are expected to hold talks. Until that time, uncertainty will dictate commodity price trends. Price trend commodity classes over past three months (Thomson Reuters Index) Energy index historic 3month price performance Precious Metals 50% 40% 30% 20% 10% 0% 10% 20% 30% 40% price pressure ahead index GASHH PALLADIUM Industrial Metals COKING COAL SUGAR IRON ORE ZINC WHEAT GASTTF STEEL SCRAP COCOA COFFEE Robusta COFFEE Arabica PLATINUM SOY CORN COPPER GOLD SILVER STEEL (HRC) ALUMINIUM index NICKEL Agri OILWTI OILBRENT price pressure mounts price recovery ahead 50% 50% 40% 30% 20% 10% 0% 10% 20% 30% 40% 50% price performance current price level towards end Q12019 (forecast ABN AMRO) price increase sustains ,

3 2 Energy Oil / Gas Temporary downward correction In recent weeks, Brent oil prices fell from USD 85/bbl to USD 65. WTI showed a similar pattern and dropped below USD 55/bbl. The decline was driven by the negative sentiment in financial markets, the waivers US president Trump gave to eight countries regarding the Iran sanctions and the build of US inventories. As a result, investors cut their speculative long positions. Despite the waivers, Iran oil exports will be lower than several months ago. This comes on top of uncertain exports by Libya, lower export from Venezuela and possible production disruptions in Nigeria. OPEC (mainly Saudi Arabia) may not be able to meet the need for OPEC oil based on the rise in global demand in 2019 and to replace lower production in some other countries. And even if it does, it will come at a cost; namely lower spare capacity. This would make the oil market more vulnerable to new calamities. The US inventories indeed show an increase recently and may rise even further. However, the US will face problems increasing its exports due to infrastructural bottlenecks which won't be solved before We still believe in our forecast of higher oil prices towards the end of this year and into 2019, even despite the current negative sentiment. The main focus will be on the upcoming OPEC meeting on 6 December which may prove to be crucial for 2019 oil price direction Oil Brent (USD/barrel) Oil WTI (USD/barrel) Gas Henry Hub (USD/mmBtu) Gas TTF (EUR/MWh) 1st contrac index (latest 1st contract price = ) Oil Brent Oil WTI index (latest 1st contract price = ) Gas HH Hans van Cleef Energy Economist hans.van.cleef@nl.abnamro.com Q418 Q119 Q219 Q319 Q419 Q120 Q220 Q320 Q ,10 3,25 3,00 3,00 2,75 26, end of period prices ,25 3,50 3,50 3,25 3,25 3,00 2, averages Gas TTF ,40 28

4 3 Precious Metals Gold / Silver / Platinum / Palladium Prices to recover again Georgette Boele Precious Metals & Diamond Analyst georgette.boele@nl.abnamro.com At the start of November Gold prices staged a recovery and prices rallied to above USD 1,235 per ounce Since then the upside in prices has been limited and weakness in the Chinese yuan and a higher US dollar pushed gold prices lower As a result gold prices dropped towards USD 1,200 again We expect gold price weakness to be temporary as we expect US dollar to come under pressure in the coming months and years and the yuan to recover as the Chinese authorities try the shield the economy from the impact of the USChina trade tensions We also foresee a recovery in silver prices because we expect a lower US dollar, and higher jewellery and industrial demand We think that platinum prices will find support in the nearterm and to recover afterwards again. Platinum prices have been beaten up too much and current price levels don t reflect fundamentals Gold (USD/ounce) Silver (USD/ounce) Platinum (USD/ounce) Palladium (USD/ounce) spot prices index (latest spot price = ) Q418 Q119 Q219 Q319 Q419 Q120 Q220 Q320 Q ,06 15,50 16,00 16,50 17,00 18, end of period prices index (latest spot price = ) averages 16,20 18, Gold Silver Platinum Palladium

5 4 Base Metals Aluminium / Copper / Nickel / Zinc Still a solid base for stronger prices going forward, despite uncertainty Sentiment in base metals markets improved strongly on the news that a possible trade deal was in the making between the US and China. Prices increased on Friday 2 November by almost 2% on average on a daily basis, with especially strong gains in the copper price. The positive sentiment turned out to be shortlived. Prices tumbled again after the weekend on the news that a deal was not imminent. This shows that prices are currently driven by macroevents. Without a trade deal, the Trump Administration will continue with its efforts to restrict the inflow of dumped or subsidised basic materials, especially those originating from China. In order to provide the economy a cushion against these trade measures, China is expected to introduce more economic stimulus going forward. On balance, this should limit the impact on base metals price. The fundamental base is still solid in most base metals markets. This means that as soon as trade tensions ease, the fundamental drivers will send base metals prices higher. Demand for copper and nickel by China is expected to increase further, given the projected positive growth in activity in large end using sectors such as automotive (especially electronic vehicles), the power grid sector and air conditioning sector. Next to that, the projected weakening trend in the US dollar by ABN AMRO (EUR/USD 1.25 eop 2019) is supportive for base metals prices. index (latest spot price = ) Aluminium Copper Nickel Zinc spot prices Aluminium Copper index (latest spot price = ) Casper Burgering Industrial Metals Economist casper.burgering@nl.abnamro.com Q418 Q119 Q219 Q319 Q419 Q120 Q220 Q320 Q end of period prices Nickel averages Zinc

6 5 Ferrous Metals Steel (HRC) / Iron Ore / Coking Coal Raw materials prices will weaken on abundant supply, soft demand Casper Burgering Industrial Metals Economist casper.burgering@nl.abnamro.com Chinese steel prices were under pressure, despite the low level of inventories. Market sentiment is weak on the basis of increasing steel output by mills and weakening end user demand. Chinese steel prices lost almost 8% this year already, while steel prices in the US increased by almost 27% in the same period. The surge in US prices are the direct result of imposed trade tariffs and the shortcoming of US steel capacity to service domestic demand to the full. Prices in Europe were also under pressure, mainly on sufficient supply and soft demand. We think that global steel prices will remain weak on the short term, but will recover again as soon as steel restocking resumes, prior to the planned steel production curbs over the upcoming winter. This means that during the first quarter of 2019, steel prices are expected to strengthen. Prices for steelmaking raw materials have risen, while global steel prices weakened in the past month by 4%. Iron ore prices increased by 8% and coking coal prices by 6% in the same period. This comes at the cost of steel mill margins. Strong steel output requires sufficient raw materials supply, such as iron ore and coking coal. Strong demand on the one hand and supply disruptions in both these products pushed prices higher. But upcoming capacity cuts during the winter will slow demand down and also prices. index (latest spot price = ) Steel (HRC) LME Steel Scrap Iron Ore Coking Coal spot prices Steel (HRC) Q418 Q119 Q219 Q319 Q419 Q120 Q220 Q320 Q LME Steel Scrap end of period prices index (latest spot price = ) Iron Ore averages Coking Coal

7 6 Agri Wheat / Corn / Soybeans / Sugar / Cocoa / Coffee Short term price pressure for corn, cocoa and sugar Wheat price slipped on a stronger dollar and a revision of China supply statistics. On balance, global wheat supply remains relatively tight, which is supportive for wheat price. China will consume more corn going forward, due to increased demand for ethanol. This means that pressure on supply increase and shortages will rise. This is supportive for price. In the soybean market, prices remained stable in the past month. US market activity remained soft, while Chinese demand for Brazilian soy increased strongly. Given the weak demand for US soy, US prices will remain weak. Sugar oversupply keeps price low. Although sugar supply disappointed in major sugar producing countries such as Brazil, India and Europa which caused a surge in sugar price we think supply will remain sufficient. This will soften sugar price on the short term. Cocoa prices surged in the past month by more than 17%. Price support came from increasing physical demand. But given the strong start of the crop season in West Africa, supply is expected to remain ample. We expect soft prices this year. Arabica coffee price has risen strongly on short covering by funds. Also, relative low price caused strategic purchasing by producers. Shortages are not expected, but demand will stay firm and prices will increase on the short term. index (latest 2nd contract price = ) WheatCBOT (USDc/bu) CornCBOT (USDc/bu) SoybeansCBOT (USDc/bu) Sugar (USDc/lb) Cocoa (USD/Mt) CoffeeArabica (USDc/lb) Wheat Corn Soybeans Casper Burgering Agricultural Economist casper.burgering@nl.abnamro.com 2nd end of period prices averages contract Q418 Q119 Q219 Q319 Q419 Q120 Q220 Q320 Q ,75 12,85 12,60 13,02 13,29 13, index (latest 2nd contract price = ) , ,55 13, Sugar Cocoa CoffeeArabica

8 A Appendix Contact details, disclaimer & extra information Contact information ABN AMRO Group Economics: Knowledge area: Phone: Marijke Zewuster Head Commodity Research Georgette Boele Precious Metals Hans van Cleef Energy Casper Burgering Industrial Metals & Agriculturals ABN AMRO on the internet: Insights: insights.abnamro.nl/eng Twitter Group DISCLAIMER This document has been prepared by ABN AMRO. It is solely intended to provide financial and general information on economics and commodities. The information in this document is strictly proprietary and is being supplied to you solely for your information. It may not (in whole or in part) be reproduced, distributed or passed to a third party or used for any other purposes than stated above. This document is informative in nature and does not constitute an offer of securities to the public, nor a solicitation to make such an offer. No reliance may be placed for any purposes whatsoever on the information, opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No representation or warranty, express or implied, is given by or on behalf of ABN AMRO, or any of its directors, officers, agents, affiliates, group companies, or employees as to the accuracy or completeness of the information contained in this document and no liability is accepted for any loss, arising, directly or indirectly, from any use of such information. The views and opinions expressed herein may be subject to change at any given time and ABN AMRO is under no obligation to update the information contained in this document after the date thereof. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading this document, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether the relevant product considering the risks involved is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO reserves the right to make amendments to this material. Copyright 2018 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO) Publication closed on 13 November