ABN AMRO upgrades commodities to Neutral in its Q1 Quarterly Commodity Outlook published today, on evidence of a return to fundamental pricing in a range of categories and the likely impact of a strengthening Brent oil price. This reverses a downgrading of the asset class to Negative last September.
The bank’s more positive view is driven by price support across most commodities and the upward potential by year end of Brent oil, natural gas, silver, palladium, aluminium and zinc. It predicts a near term correction for platinum and significant declines in the longer term for gold, nickel and iron ore.
“Although we don’t see factors in place for a general commodities rally, current prices are supported by the macro-economic environment and we expect sideways trading across the spectrum during the first half – with upwards potential in some categories by year end,” said Georgette Boele, Head of FX & Commodity Strategy at ABN AMRO.
Despite a narrowing of their spread in previous months, the bank predicts structural divergence in WTI/ Brent, with WTI driven by US domestic factors and Brent’s greater exposure to geopolitical risks. It also sees rebalancing of major commodity indices favouring Brent. “WTI is isolated from developments in non-OECD oil markets and increasingly driven by factors affecting US oil production. It has become a less reliable marker for conditions in global oil markets,” according to Tim Boon von Ochssée, Energy Economist at ABN AMRO.
The bank sees gold, silver and palladium prices supported at current levels, with platinum vulnerable to weak demand. The gold/ platinum ratio remains at extreme levels not seen since the 1980’s due to uncertain Chinese jewellery demand – a key driver of platinum prices along with autocatalysts. The bank monitors silver and palladium opportunities, but continues to predict a fall in gold over the longer term.
Already at a decade low, ABN AMRO sees natural gas under continued pressure from accelerating unconventional gas output and unseasonably warm weather in key markets – before prices rise in the second half. The bank believes base metals could be the first category to rally in the next twelve months and that ferrous metals prices, although supported in the near term, are exposed to future overcapacity.
In agricultural products, the bank sees prices underpinned by a return to normal production after bumper crops in 2010/11 and increasing global consumption. However, wheat prices are expected to decline further due the reopening of the Russian export market and ample global supply.
ABN AMRO is a leading bank in global commodity markets, with a heritage dating back to 1720. Its commodity research team 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.
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