 "Global research houses revise commodity price outlook upward")
Global investment banks have started revising upward their price outlook for base metals, coal & oil, and precious metals. They see demand starting to outweigh supplies that were cut over the past few quarters.
Crude oil and precious metals have already seen a sharp up-move from low levels. Crude oil was quoted around $25-26 per barrel, gold below $1,100 six months ago. Recovery in metals was slower and they are facing resistance at higher levels, except zinc which is up about 20 per cent.
Citi Research’s global commodity team has upgraded the price forecast for seaborne thermal coal by 17 percentage points, to 37 per cent, for 2016/17. “We maintain our view that the thermal coal price in China will continue to recover in the second half of 2016 as the coordinated supply cuts outpace demand decline,” it has said.
Citi is also bullish on cement and steel. The former is expected to do well due to modest demand support in the second half, with disciplined supply. They see a near-term upside for steel margins but remain bearish in the medium term, as the planned capacity cuts will mostly be those in already idled mills.
Jefferies’ Global Natural Resources forecasts an upward revision in all metal prices for the next two quarters. The US brokerage said the aluminium average price forecast had been revised upward by 4.5 per cent, copper's by 0.9 per cent and zinc a further 7.3 per cent for 2016.
Citi Research cites three major factors that would revive commodities. It said funds would increase the bets on commodities. “Strong performance of commodities to resume this quarter and through the end of the year, buttressing renewed financial flows into commodity structures, including both physically-backed ETFs (exchange traded funds) and passive long-only investment vehicles. This is in stark contrast to the past two years, during which time commodities sold off during second halfs, leading the asset group to be the worst performing as compared with equities and debt securities."
Also, Citi says, “Overall commodity markets continue to lurch toward rebalancing as global demand continues to grow at a moderate rate, while the pullback in capital spending is reducing not only supply growth but total supplies across nearly all extractive industries.”
Adding: “The newly expanded and deepened Panama Canal should have a noteworthy long-term positive impact on Atlantic to Pacific commodity trade flows, especially of agricultural and energy products from the US into the Pacific Basin (both Latin America and Asia).”
For gold and silver, most brokerages are bullish for the next two quarters. Bank of America Merrill Lynch (Bofa ML) is the most so and sees gold rising to $1,500 an ounce in the near term, predicting the polarisation of politics would lead to further economic uncertainty and gains for the yellow metal.
Risk aversion and investor anxiety has also boosted silver, gone ahead of gold in the wake of the Brexit vote in Britain. It has risen a little more than 40 per cent this year and breached $21 an ounce last week.
BofA ML says “an overshoot to $30 an oz is possible”, as silver is driven by retail rather than institutional investors, is a much smaller market than gold and prone to sharp moves and volatility.
Crude oil and precious metals have already seen a sharp up-move from low levels. Crude oil was quoted around $25-26 per barrel, gold below $1,100 six months ago. Recovery in metals was slower and they are facing resistance at higher levels, except zinc which is up about 20 per cent.
Citi Research’s global commodity team has upgraded the price forecast for seaborne thermal coal by 17 percentage points, to 37 per cent, for 2016/17. “We maintain our view that the thermal coal price in China will continue to recover in the second half of 2016 as the coordinated supply cuts outpace demand decline,” it has said.
Citi is also bullish on cement and steel. The former is expected to do well due to modest demand support in the second half, with disciplined supply. They see a near-term upside for steel margins but remain bearish in the medium term, as the planned capacity cuts will mostly be those in already idled mills.
Jefferies’ Global Natural Resources forecasts an upward revision in all metal prices for the next two quarters. The US brokerage said the aluminium average price forecast had been revised upward by 4.5 per cent, copper's by 0.9 per cent and zinc a further 7.3 per cent for 2016.
Citi Research cites three major factors that would revive commodities. It said funds would increase the bets on commodities. “Strong performance of commodities to resume this quarter and through the end of the year, buttressing renewed financial flows into commodity structures, including both physically-backed ETFs (exchange traded funds) and passive long-only investment vehicles. This is in stark contrast to the past two years, during which time commodities sold off during second halfs, leading the asset group to be the worst performing as compared with equities and debt securities."
Also, Citi says, “Overall commodity markets continue to lurch toward rebalancing as global demand continues to grow at a moderate rate, while the pullback in capital spending is reducing not only supply growth but total supplies across nearly all extractive industries.”
Adding: “The newly expanded and deepened Panama Canal should have a noteworthy long-term positive impact on Atlantic to Pacific commodity trade flows, especially of agricultural and energy products from the US into the Pacific Basin (both Latin America and Asia).”
For gold and silver, most brokerages are bullish for the next two quarters. Bank of America Merrill Lynch (Bofa ML) is the most so and sees gold rising to $1,500 an ounce in the near term, predicting the polarisation of politics would lead to further economic uncertainty and gains for the yellow metal.
Risk aversion and investor anxiety has also boosted silver, gone ahead of gold in the wake of the Brexit vote in Britain. It has risen a little more than 40 per cent this year and breached $21 an ounce last week.
BofA ML says “an overshoot to $30 an oz is possible”, as silver is driven by retail rather than institutional investors, is a much smaller market than gold and prone to sharp moves and volatility.