Economic growth fuels demand for cyclical commodities

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Metal and mining sector industry

The prices of cyclical metals are expected to climb in 2015. And also the oil prices will pick up, but remain below the 2013 and 2014 levels. Historically low oil prices will drive growth and demand for commodities.

Industrial activity growth boosts demand for cyclical commodities

ABN AMRO is expecting cyclical metal prices to improve in the upcoming year, thanks to greater industrial activity, recovery of the construction sector and higher car production figures (especially in the US and Asia). Gold, steel, iron ore and coking coal prices, however, are likely to decline due to overproduction, large stocks and relatively weak international demand. Base metal prices will advance from their current levels, but they will remain under pressure resulting from an expected slowdown of the Chinese economy. And although ABN AMRO is expecting pressure on gold prices in 2015 and 2016, prospects for silver, platinum and palladium have improved. Ferrous metal prices will maintain weak, especially in the iron and steel industry.

Oil prices recovering but relatively low for now

In the wake of the peak in June 2014, many commodity prices have lost ground as a consequence of plummeting oil prices. Indeed, oil prices were more than halved in just a couple of months, mainly due to stubborn oversupply. As the market regains its balance, ABN AMRO expects oil prices to recover in the months ahead, but they will continue to be low compared with averages over 2013 and 2014. In the coming years, this will also affect other commodity prices: producing base and precious metals takes great amounts of energy, and relatively low oil prices will favourably impact production costs.

Lower oil prices have positive price effects on commodities

Lower oil prices provide a boost to economic growth, which in its turn fuels demand for commodities. Gas prices are likely to remain low, as current plentiful supplies can easily absorb any increases in demand. Going forward; oversupply and decoupling from oil prices will continue to drive down European gas prices. Additionally, lower oil prices are putting downward pressure on the price of sugar, an effect which is being reinforced by the oversupply in the sugar market. The cereal markets, meanwhile, are also characterised by oversupply. Although price trends for cereals in general are still vulnerable, ABN AMRO is expecting this market to enter calmer waters with prices settling.

You can download the full Commodity Outlook Q1 report below.

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