Economic growth does not bring automatic upturn in commodity prices

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Metal and mining sector industry

The pace of international growth should accelerate in the quarters ahead, ABN AMRO expects. Conditions in the developed economies have improved and emerging markets – particularly manufacturing – should benefit from rising exports to developed markets.

Base metal prices set for steady upturn Hans van Cleef Hans van Cleef Senior Sector Economist Energy

Base metal prices set for steady upturnWhile improved conditions should boost the demand for industrial metals in the longer term, a stronger US dollar, rising interest rates and a better investment climate appear to hold out opportunities for asset classes other than commodities in the rather shorter term, finds ABN AMRO’s Quarterly Commodity Outlook, which is out today.

Energy prices down

Unfolding geopolitical tensions have kept oil prices in a narrow range, but their impact on oil and gas prices should diminish this year and in 2015, even if these tension continue to be a factor of uncertainty. Surging oil output in both OPEC and non-OPEC countries will make for massive stockpiles, and we expect to see (Brent) oil prices drop to the bottom of the long-term range of USD 100-120 a barrel.

Gas prices typically suffer from lower seasonal demand in the second quarter, but this scenario might not play out this year: after the harsh winter, gas stocks will need to be replenished in the United States and demand is expected to stay high. In Europe, by contrast, gas prices have been moving down in the face of uncertainty over gas deliveries from Russia to Europe – a trend that is likely to continue.

Market for precious metals limbering up for better 2015

ABN AMRO expected precious metal prices to remain depressed in 2014. With US economic growth gathering momentum, the markets probably factoring in higher US interest rates, a stronger US dollar and an improved investment climate, prices of precious metals – mainly gold and silver – are likely to be squeezed. No controls are expected on the supply of Russian palladium and strikes in South Africa should also end, with a proportion of open investment exposures to platina and palladium being closed, and prices in 2014 being squeezed hard. ABN AMRO forecasts an improved outlook for silver, platinum and palladium in 2015 and 2016, when supply and demand are likely to return as the key determining factors.

Global growth boosts industrial metals markets

We expect demand for – cyclical – base metals to continue to grow right into 2016, while stimulative measures by the Chinese authorities might help restore confidence in the short term. By 2016, base metals prices should be up on the back of a rebounding world economy and solid prospects for end-users of metals, such as construction, electronics, automotive and manufacturing. We reckon prices for base metals are likely to move ahead only gradually, with any significant upturns dampened by persistent uncertainty in the metals markets.

In Europe, demand for steel is expected to continue to rise in 2015 and 2016, the quarterly outlook projects, with prices for European steel going up. Prospects for the American steel market look equally promising and should benefit from higher demand for steel from the automotive and construction sectors. That said, net global steel prices are likely edge down through to 2016 in the wake of relatively subdued market conditions outside the US and Europe. We believe that overcapacity will continue to be a feature of these markets until 2016, depressing prices. With new flows of iron ore from fresh mining projects reaching the markets, iron ore prices are liable to fall until 2016. At today’s low prices, smaller (and more expensive) producers of coking coal are unlikely to survive.

Weather conditions to have major impact on agriculture

El NiƱo-type weather might hit production of cocoa, sugar and wheat, causing prices to shoot up. By contrast, this same pattern might benefit corn and soy bean production – and push prices of these lower still.

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