Commodity prices will weaken in the third quarter due to a synchronised slowdown in global economic growth, although wheat, coffee and some metals should be underpinned by continuing supply/demand imbalances – according to Jacques van de Wal, Head of Sector & Commodity Research in ABN AMRO’s debut Quarterly Commodity Outlook, published today.
Despite having a short term neutral outlook with negative bias, the bank’s long term (2 year) commodities view is generally positive, based on solid Asian demand, increasing global consumption and economic stabilisation.
“Commodity markets have taken a ‘glass half full’ attitude towards recent economic data. An adjustment of growth expectations could result in fears of lower demand and a drop in overall investor risk appetite. Commodity prices tend to correlate with equities in this environment and look comparatively expensive,” said Georgette Boele, Head of FX & Commodity Strategy at ABN AMRO.
The bank sees ongoing divergence in WTI/Brent oil prices, reflecting US over supply. Non-OECD demand, particularly in China, should underpin structurally higher oil prices in the medium term, while increased natural gas demand is expected as some countries move away from nuclear power.
In precious metals, ABN AMRO sees gold investment as crowded and posing serious downside risks, while the gold/ silver price ratio will continue to reflect silver’s greater exposure to economic slowdown. Palladium is preferred to platinum.
Continued Asian urbanisation and industrialisation - especially China and India - remain positive factors for long-term demand in both base and ferrous metals. Zinc demand will exceed supply until 2013 and the price is therefore expected to rise. Copper, however, remains at relatively high levels but is expected to weaken due to excess supply. Steel prices are expected to weaken in the long term due to oversupply along with iron ore and coking coal, but all are expected at relative high levels in the short/ medium term.
In agriculture, supply/demand imbalances will support wheat and coffee prices while growing global sugar consumption will fuel price rises – particularly in the face of a poor Brazilian harvest. Cocoa prices are expected to fall on oversupply.
ABN AMRO is a leading bank in global commodity markets with a heritage dating back to 1720. Commodity Research provides specialist coverage of precious, base and ferrous metals, energy as well as agricultural products. The team is part of a larger ABN AMRO Research Group, with 60 experts worldwide based in Amsterdam, Geneva, Zurich, Frankfurt, Paris, Singapore and Hong Kong.