Quarterly Commodity Outlook

Quarterly Commodity Outlook
ABN AMRO Group Economics
Commodity Research
July 2014
Overcapacity dampens commodity price expectations
We remain positive on the global economy going forward. We see headwinds fading for the emerging markets and expect general investor
sentiment to remain constructive. This will mainly support cyclical commodities with a relatively tight demand and supply balance, especially if
this is not already reflected in prices. While we maintain a positive outlook on base metals, we anticipate lower oil and precious metals prices.
We expect ample oil supply and a lower risk premium to push oil prices down. In addition, we foresee the Fed becoming more hawkish. This will
lead to an upward adjustment in interest rates for 2015, which could have a substantial negative impact on precious metals and oil prices.
Meanwhile, agriculturals and soft commodities may feel the impact of a potential El Niño, but the chances of a strong EL Niño have diminished.
3-month view
WTI

Brent
Nat. gas (HH)

















Nat. gas (TTF)
Energy: Fears of shortages in well-supplied markets
long-term view



Although geopolitical tensions dominated the energy markets in recent months, the
overall impact on energy prices was very limited. In fact, oil prices are trading below
pre-Iraq-crisis levels and European gas prices dropped more than forty per cent
despite tensions between Russia and Ukraine. However, futures prices show a
different picture, reflecting market concerns about the future of the oil and gas supply.
Seasonal winter demand could hurt the well-filled gas stocks, while future production
disruptions could pose a threat to required future oil production.
Precious metals: Lower investor demand to hurt prices

Gold
Silver

Platinum


Palladium















Precious metals have performed strongly year-to-date but this is unlikely to continue.
The cocktail of higher US rates, no substantial inflation fears and a stronger US dollar
in an environment of positive sentiment will prove negative for gold and silver.
Platinum and palladium should be less negatively affected as long as the prospects
for industrial demand and car sales remain good. However, it is likely that a gold selloff will have a more substantial negative impact on both platinum and palladium due
to large investor overhang in these precious metals.
Base metals: Robust sentiment is supporting prices
Aluminium


Copper












Nickel
Zinc







Alongside the pick-up in the global economy, conditions in most metals markets are
pointing up. Concerns over the Qingdao probe have slowly subsided and investor
jitters decreased further once solid macro-economic figures on the Chinese and US
economies were released in early July. Going forward, the Chinese government is
expected to implement more stimulus measures in order to meet its growth objective.
This will have a positive impact on global base metals markets. As a result, base
metals have re-emerged among the favourite picks of investors. The two jewels in the
base metals complex are currently aluminium and zinc.
Ferrous metals: Weak price environment on overcapacity
Steel (HRC)

Iron ore
Coking coal















Wheat






Corn






Soybeans






Sugar



 

Arabica Coffee






Cocoa






The weak price environment lingers on in most ferrous metals markets due to
overcapacity. The global HRC steel price has lost 3% since the start of 2014, while
prices for steelmaking raw materials have experienced double-digit declines. There is
currently more than sufficient iron ore in the market to service demand, and
oversupply is weighing heavily on prices. In coking coal, supply is outpacing
underlying demand, which is causing price weakness. Only further mine closures and
(significant) capacity cuts could trigger a recovery in the current low-price
environment.
Agriculturals: Weather related events set the tone
Markets drew up the balance sheet of the ultimate impact of the extreme drought in
Brazil and the copious rain/snow in the United States at the start of the year. As a
result, coffee and corn prices stabilised. Meanwhile, prices declined for wheat and
other grains in the slipstream after the stabilisation of the political tensions between
Ukraine and Russia. The focus is now shifting towards the possible effects of other
weather-related events, such as the drier-than-normal Indian monsoon and the
potential of an El Niño weather phenomenon. Although many markets are
oversupplied, prices continue to rise due to technical and speculative buying.
decrease by 11% or more





decrease betw een 5% and 10%

price movement betw een -4% and +4%

increase betw een 5% and 10%

increase by 11% or more
- Short term: our three month outlook versus spot rate on July 22nd.
- Long term: 2016 average forecast price versus 2014 forecast price.
2
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
ABN AMRO forecasts
ABN AMRO Commodity Price Forecasts
Spot rate
22 July
Average
price Q22014
3m
6m
12m
(end of
Oct)
(end of
Jan)
(end of
Jul ’15)
2014
2015
2016
(yr avg)
(yr avg)
(yr avg)
106.74
109.68
105
105
95
105
100
95
104.59
103.39
100
95
90
100
95
90
3.80
4.59
4.50
4.50
4.75
4.50
4.75
5.00
16.30
19.25
21
21
18
21
19
17
1,305.75
1,290.00
1,200
1,100
900
1,250
925
950
20.81
19.61
18.0
16.5
18.0
19.0
18.0
22
1,487.00
1,446.90
1,400
1,300
1,400
1,425
1,400
1,600
872.00
815.24
800
750
800
800
775
800
1,800.46
2,050
1,930
1,975
1,825
2,050
2,200
Energy:
- Brent
(USD/barrel)
- WTI
(USD/barrel)
- Gas HH
(USD/mmBtu)
- Gas TTF
(EUR/MWh)
Precious metals:
- Gold
(USD/oz)
- Silver
(USD/oz)
- Platinum
(USD/oz)
- Palladium
(USD/oz)
Base metals:
- Aluminium
(USD/t)
2,024.75
0.92
(USD/lb)
- Copper
(USD/t)
7,037.50
(USD/t)
3.08
19,027.00
18,466.06
8.63
8.38
(USD/lb)
- Zinc
2,360.25
(USD/t)
6,794.45
3.19
(USD/lb)
- Nickel
0.82
1.07
(USD/lb)
2,071.25
0.93
7,140
3.24
18,300
8.30
2,230
0.94
1.01
0.88
7,230
0.93
7,300
3.24
19,000
7,050
3.28
18,900
8.39
2,200
0.83
1.02
7,200
3.20
17,500
8.57
2,275
0.93
1.03
7,200
3.27
18,000
7.94
2,150
0.99
3.27
19,000
8.17
2,250
0.98
8.62
2,400
1.02
1.09
Ferrous metals:
- Steel (global)
(HRC; USD/t)
- Iron ore
(fines, USD/t)
- Coking coal
(USD/t)
578.28
592.20
570
560
575
570
565
575
95.36
103.28
97
100
100
104
98
95
105.00
113.23
107
115
120
118
123
129
548.75
663.31
525
525
-
550
-
-
368.25
480.75
375
375
-
400
-
-
1,184.00
1,468.05
1,150
1,050
-
1,200
-
-
18.67
17.99
19.00
19.00
-
18.00
-
-
172.10
187.93
180
170
-
175
-
-
3,108.00
3,008.15
3,100
3,200
-
3,025
-
-
Agricultural:
- Wheat
(USDc/bu)
- Corn
(USDc/bu)
- Soybean
(USDc/bu)
- Sugar
(USDc/lb)
- Arabica
coffee
(USDc/lb)
- Cocoa
(USD/t)
3
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Table of contents
Macro-economic
4
Commodity top down
5
Energy
6
Precious metals
8
Base metals
10
Ferrous metals
12
Agriculturals
14
Macroeconomic indicators
18
Historic commodity prices
19
Contributors
21
Disclaimer
22
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Macro-economics
Marijke Zewuster, tel. +31 (0)20 383 05 18
Stronger, more convincing growth ahead
•
Growth in the US will accelerate from the second quarter
•
Emerging Markets will benefit from stronger growth in the advanced economies
• Downside risks are abating
Manufacturing PMI surveys (index)
65
60
55
50
45
40
35
30
06
07
08
09
US
10
11
12
Eurozone
13
14
China
Source: Thomson Reuters Datastream
Asia: export growth gaining momentum
%, yoy
4
10
8
6
More benign outlook
Previous impediments to demand are easing and risks to
the global economy related to China’s transition and the
Fed’s exit from unprecedented stimulus appear to be
abating. Still, we have revised down our world GDP
forecast for this year, but this is largely a backward-looking
revision. It relates to a very weak first quarter in the US,
which was partly due to bad weather. Growth from the
second quarter onward is likely to be impressive, which is
reflected in our elevated average annual economic growth
forecast for next year. Positive sentiment has also gained
ground in Asia, as firmer demand in the advanced
economies is leaving its mark on emerging market exports.
Fears of a hard landing in China have receded. The rollout of policy measures to reduce the impact is starting to
pay off and the fine-tuning of policies will likely continue as
the reform path is still long. We have kept our 2014/15
growth forecast unchanged at 7.5% and 7%, respectively.
Emerging Asia remains the fastest growing emerging
region (6.1%), followed at a respectable distance by Latin
America (1.9%) and emerging Europe (1.6%).
4
Source: ABN AMRO Group Economics
Downward risks decreasing, but not gone
Downward risks may have fallen in recent months, but
they remain clearly present. If the Fed exit from monetary
stimulus turns out to be more abrupt than we expect and
bond yields in advanced economies rise sharply, this could
trigger a fresh round of capital outflows in emerging
markets. Another risk stems from the strong debt build-up
in several emerging markets, including China. A potential
flare-up of (geo)political unrest is another risk (Ukraine,
Iraq). A different type of risk stems from the formation of a
possible strong El Niño. In the past, a strong El Niño
(1982/83 and 1997/98) coincided with episodes of debt
crisis in commodity-exporting emerging countries, but
stronger economic fundamentals now seem to have clearly
diminished this risk. And the impact of a possible El Niño
on global economic growth also appears to be limited. Still,
for certain countries it could pose a downward risk.
According to a recent study from the University of
Cambridge and the IMF, an El Niño event leads to a
temporary reduction in economic activity in countries like
Australia, Chile, Indonesia, India, Japan, New Zealand and
South Africa. It could also lead to temporary higher (food
price) inflation and increased social unrest.
Upside risks to our forecast:
Downside risks to our forecast:
•
•
2
0
-2
-4
-6
China
S-Korea
First quarter 2014
India
Taiwan
Second quarter 2014
Source: Thomson Reuters Datastream
ABN AMRO GDP forecasts (% yoy)
2011
•
•
2012
2013
2014
2015
China:
9.3
7.7
7.7
7.5
7.0
US
1.8
2.8
1.9
1.8
3.8
Eurozone
1.6
-0.6
-0.4
1.3
1.8
World
4.0
3.0
2.9
3.2
3.8
EM Asia
7.4
6.1
6.1
6.1
6.0
EM Europe
4.8
2.1
1.7
1.6
2.7
Latin America
4.6
2.8
2.4
1.9
3.0
Fed keeps rates on hold longer than anticipated
Stronger-than-forecast Chinese economic performance
Stronger return of confidence
•
•
Increased risk aversion due to abrupt Fed exit
Weaker-than-expected Chinese economic growth
Geo-political tensions
5
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Commodity top down
Georgette Boele, tel. +31 (0)20 629 77 89
Diversity among commodities
•
CRB index gave back gains on lower oil, grains and soft commodity prices
•
Divergence in commodities continues: positive on base metals but negative on oil and precious metals
•
El Niño could impact agricultural and grain crops
Divergence among commodities continues…
The CRB index was up around 11.8% from the start of the
year until 25 June. The main contributor to the rally in Q2
was higher oil prices. However, the oil price rally came to a
halt in June, dragging down the index, which has given
back more than 4% of its gains since end-June. What is
more, the sell-off in soft commodity and grain prices also
had a substantial negative impact on the overall index.
Lower oil, grain and soft commodity prices have more than
offset the rise in base metals and precious metals. For
example, base metals and the more cyclical precious
metals received strong support on the outlook for a stronger
US and global economy. On the other hand, gold prices
have moved higher on safe haven buying and inflation fear
demand.
Performance individual commodities Q1 vs Q2
20.1%
Nickel
10.6%
Zinc
9.1%
Palladium
6.3%
Aluminium
Copper
5.9%
Sugar
5.7%
Platinum
5.6%
Silver
5.6%
Cocoa
5.1%
Oil-WTI
4.4%
Oil-Brent
4.4%
Gold
3.1%
Nat. Gas (HH)
-0.9%
Global steel (HRC)
-1.6%
-4.5%
Coking coal
-5.0%
Coffee
-9.3%
Soybeans
Wheat
Corn
-15.2%
-17.1%
Iron ore
-19.6%
Nat. Gas (TTF)
-20.3%
-60% -40% -20%
commodity performance Q2
0%
20%
40%
60%
commodity performance Q1
Source: Thomson Reuters Datastream
Commodity indices
2010
2011
2012
2013
22 July
2014
332.80
305.30
295.01
280.17
297.35
3,896
3,627
3,700
3,534
3,590
CRB:
- index
RICI:
- index
Source: Bloomberg
Upside risks to our forecast:
•
•
•
Stronger global economic growth
Supply disruptions
Adverse weather conditions
…and is likely to abate
As highlighted on the macro page, we remain positive on
the global economy going forward. We see headwinds
fading for the emerging markets and expect general
investor sentiment to remain constructive. This will mainly
support cyclical commodities with a relatively tight demand
and supply balance, especially if this is not already reflected
in prices. We remain positive on base metals. In contrast,
we anticipate lower oil and precious metal prices. In the
case of oil prices, ample supply and a lower risk premium
will push prices down in our view. In addition, we expect the
Fed to become more hawkish, leading to an upward
adjustment in interest rates for 2015, which could have a
substantial negative impact on certain commodity prices.
One example is precious metals, which we judge will be the
most negatively affected. In addition, oil prices could also
feel the pinch. Base metals will likely prove to be more
resilient as they are more leveraged to the Chinese
economy. Meanwhile, agriculturals and soft commodities
may well feel the impact of El Niño. This could damage
corn, coffee and sugar crops while supporting soybean
crops in South America. Australia’s wheat crop could be
impacted by drought. Moreover, if El Niño occurs, it could
bring dry weather to India, threatening sugar and cotton
crops. Lower income from agriculture would result in less
money being available for auspicious ceremonies and
weddings. As a result, demand for gold could drop unless
inflation fears sharply increase.
Downside risks to our forecast:
•
•
•
Weaker economic growth
More aggressive rate hikes by the Fed
Sharp deterioration in investor sentiment.
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Energy: Brent, WTI, Henry Hub, TTF
Hans van Cleef, tel. +31 20 343 46 79
Fears of shortages in well-supplied markets
•
Geopolitical tensions have increased worries, but the overall impact on energy prices was limited
•
Tensions are only reflected in oil and gas spot markets…
•
… as uncertainty about impact of low-investment environment keeps future prices lifted
Price index oil 2014
115
index (1 Jan 2014 = 100)
110
105
100
95
90
Jan
Feb
Mar
Apr
Oil: WTI
May
Jun
Oil: Brent
Jul
May
Jul
Source: Thomson Reuters Datastream
Price index gas 2014
index (1 Jan 2014 = 100)
200
150
100
50
0
Jan
Feb
Mar
Apr
Gas: Henry Hub
Jun
Gas: TTF
Source: Thomson Reuters Datastream
World oil supply and demand
93
91
89
87
mb/d
6
85
83
2008
Source: IEA
2009 2010
Demand
2011
2012
2013
Supply
2014
Geopolitics: increased tensions, limited impact
In recent months, geopolitical tensions have dominated
energy markets. As ISIS (the Islamic State in Iraq and
Syria) took control of a large area in north-west Iraq,
market anxieties increased. Nevertheless, Iraq was able to
keep its oil production and exports up and running as the
largest oil fields are situated in the south. The fact that
ISIS was not able, or willing, to expand its area of control
helped ease oil investors’ concerns somewhat. Therefore,
despite increased uncertainties concerning the secondlargest OPEC oil producer, the impact on oil prices was
relatively limited. The main reason was that ISIS was not
attacking major oil fields in southern Iraq, as well as the
fact that the international community – particularly SaudiArabia – guaranteed the global oil supply. After Libya
announced the restart of two important oil terminals, prices
declined even further. As a result, the earlier rise of the
risk premium disappeared.
The most important driver for the gas markets was the
geopolitical strain between Russia and Ukraine. After the
annexation of Crimea and the increased tensions along
the Russia/Ukraine border, investors became more and
more worried about the continuation of gas deliveries from
Russia to Europe. As talks continue regarding the issue of
Ukraine’s gas payments to Russia, hopes are high that a
proper solution can be found before the winter season
starts and gas demand increases. The impact of
geopolitical tensions on European gas prices was very
limited. In fact, well-filled inventories and weak seasonal
demand resulted in an almost 50% drop in the TTF gas
futures price (1st contract).
Futures show a different picture
One similarity between oil and (European) gas longer-term
futures is that the price development differs from the
movements in the spot, or near-term (first futures contract)
price. For comparison purposes, we will take the
December 2016 contracts. While oil spot prices dropped to
pre-Iraq crisis levels, the December 2016 price only
nudged slightly lower. As a result, the spread between the
first and the December 2016 contract narrowed to USD
7/bbl, from the USD 12/bbl average spread during the first
half of 2014. This implies that the market could still be
nervous about the future oil supply. Not so strange if one
considers that Iraq was penciled in for roughly 40% of the
future supply growth after 2016. Iraq had the ambition of
tripling its oil output over the next few years. However, the
present crisis may impact the investment needed to raise,
or even maintain, oil production and could therefore pose a
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Energy: Brent, WTI, Henry Hub, TTF
Spread TTF gas and Brent oil 1st vs 30th contract futures
130
34
120
29
110
24
19
USD/bbl
90
80
Jan-13
14
Jul-13
Jan-14
Eur/Mwh
100
Jul-14
Brent oil 1st contract (lha)
Brent oil 30th contract (lha)
TTF 1st contract (rha)
TTF 30th contract (rha)
Source: Thomson Reuters Datastream
ABN AMRO price forecast (Index)
250
forecast
ABN
AMRO
200
150
index (2005=100)
7
100
50
0
05 06 07 08 09 10 11 12 13 14 15 16
Oil: WTI
Oil: Brent
Gas: Henry Hub
Gas: TTF
Source: Thomson Reuters Datastream, ABN AMRO
ABN AMRO price forecast table
3m
6m
12m
(end of
Oct)
(end of
Jan)
(end of
Jul ‘15)
105
105
100
2014
avg
2015
avg
95
105
100
95
90
100
95
4.50
4.50
4.75
4.50
4.75
21
21
18
21
19
Brent:
- USD/barrel
WTI:
- USD/barrel
Gas HH:
- USD/mmBtu
Gas TTF:
- EUR/MWh
Source: ABN AMRO Group Economics
threat to the required level of production in the future.
While longer-term future prices for oil found more support
than spot prices, a similar price development, but with a
completely different meaning, emerged for gas. While TTF
spot prices (1st contract) sharply declined, the December
2016 contract traded within narrow ranges. The current
large inventories will have a less significant impact on the
supply/demand balance at the end of 2016. After all, gas
demand is largely affected by weather conditions. With the
seasonally stronger winter demand for 2014/2015 and
2015/2016 still far away, it is almost impossible to tell
whether current large stocks will still be in place. This is
the main reason that December 2016 prices for gas did not
decline. The fact that long-term futures prices were not
able to appreciate either, suggests that a protracted
conflict between Russia and Ukraine, affecting Russian
gas deliveries to Europe, is seen as unlikely.
Gas: Differences between US Henry Hub and NL TTF
US Henry Hub gas prices also unexpectedly eased during
recent weeks. Cooler weather has slowed seasonal
summer (air conditioning) demand, providing an
opportunity for rebuilding inventories after the extremely
harsh winter. Although US natural gas prices are still
trading within a moderate rising uptrend, the lower band of
this range could be tested in the coming weeks. While
such a test cannot be excluded, we expect the rising
uptrend to remain intact due to the increase in economic
growth-driven demand. We maintain our view of a longerterm moderate decline in TTF prices based on a
decoupling of oil prices. Nevertheless, since the – mainly
speculative-driven – downward movement of the TTF price
went so extremely fast, we expect a significant near-term
upwards correction. Such a correction could emerge as
soon as seasonal demand starts to pick up, resulting in a
draw from gas inventories and profit-taking on recent
speculative short positions. Since this only affects the
near-term contracts, it will not have a significant impact on
the competitive (dis)advantages between European and
US (chemical) industry.
Ample supply to meet rise in demand
Until 2016, we still expect ample global supply to meet the
rise in global demand for both oil and gas. Therefore,
upside risks – which could have increased in the past
months – will not have a significant supportive effect on
prices in this forecast period. Whether these influences will
be seen in the longer run strongly depends on future
developments in demand (economic growth versus
efficiency and changes in the energy mix) and supply
(higher investment costs or lower investments in both the
oil and gas industries, for instance as a possible result of
geopolitical tensions, versus technological developments).
Upside risks to our forecast:
Downside risks to our forecast:
•
•
•
•
Geopolitical risks escalate, resulting in supply disruptions
Weather related events resulting in lower supply
Faster-than-expected economic recovery boosts demand
•
•
Geopolitical tensions diminish: lower risk premium
USD rallies faster and more than expected
Economic growth (demand) fails market expectations
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Precious metals: gold, silver, platinum, palladium
Georgette Boele, tel. +31 20 629 77 89
Lower investor demand will hurt prices
•
Precious metals have shown a strong performance year-to-date, but this is unlikely to continue
•
Higher US dollar and US rates will have negative impact on precious metals
•
Tighter markets will dampen the downside in platinum and palladium
Strong performance unlikely to continue
Price index precious metals 2014
Palladium prices have shown the strongest performance
130
among the precious metals year-to-date, leaving all the
125
others (even platinum) far behind. Market conditions in
index (1 Jan 2014 = 100)
120
palladium were substantially tighter compared to platinum
115
(see last graph below). Moreover, platinum has a higher
110
sensitivity to gold prices, which came at times under some
105
pressure, hurting platinum prices as well. So far this year,
100
gold prices have defied market expectations by moving
95
higher instead of lower. For starters, this was due to the
90
Jan
Feb
Mar
Apr
May
Gold
Platinum
Jun
Jul
Silver
Palladium
fairly robust demand for gold in China at the start of the
year. Moreover, geo-political uncertainty has helped gold
as a traditional safe haven asset. In addition, dovish
rhetoric by the US Federal Reserve continued and weaker
Source: Thomson Reuters Datastream
US economic data in Q1 hurt US dollar sentiment across
the board, including versus gold.
Gold demand categories
6,000
Sensitivity to the US dollar and US rates
Gold generally has a strong negative relationship with the
US dollar. Moreover, it has a tendency to fall under
4,000
pressure when US interest rates rise, US equity markets
rally and investor sentiment remains constructive (low or
2,000
Mt
lower VIX). Silver often trails gold behaviour in such an
environment. Platinum is frequently negatively affected
0
when gold prices come under pressure, while palladium is
the only precious metal that closely follows the global
-2,000
05 06 07
Jewellery
Bar & coins
08 09 10
Industrial
11
12 13 14
Official sector
ETF + CTFC
economic cycle and therefore has the closest link to base
metals. Our base scenario is that the US economy will
accelerate strongly, the US dollar will rally and investor
sentiment
Source: Thomson Reuters GFMS, ABN AMRO
will
remain positive despite the upward
adjustment in expectations about the future path of Fed
interest
Supply, demand balance palladium
rates.
Financial
markets
are
significantly
underestimating the likely upside for US rates next year.
12,000
We therefore see upside for short rate expectations and
the dollar in the coming months. The cocktail of higher US
9,000
rates, no substantial inflation fears and a higher US dollar
6,000
in an environment of positive sentiment will prove negative
3,000
for gold and silver. Platinum and palladium should be less
Moz
8
negatively affected as long as the prospects for industrial
0
demand and car sales remain good. However, it is likely
-3,000
that a sell-off in gold will have a more substantial negative
impact on both platinum and palladium, because of large
-6,000
2000 2002 2004 2006 2008 2010 2012 2014 f
Supply
Demand
Source: Thomson Reuters GFMS, ABN AMRO
Balance
investor position overhang in these precious metals.
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Precious metals: gold, silver, platinum, palladium
Weighted average total cash costs of gold
900
750
600
USD/ounce
450
300
150
0
2009
2010
2011
2012
2013
Weighted average cash costs
Source: Bloomberg, ABN AMRO
ABN AMRO price forecast (index)
800
forecast
ABN
AMRO
700
600
index (1999=100)
9
Tighter conditions for platinum and palladium…
For five months, strikes at South African mining companies
have seriously hurt mine output. The companies have
compensated the short-fall in production by selling out of
inventories. The strikes came to an end on 24 June and it
will take approximately three months before production is
restored to more normal levels. Expectations are that
strikes this year have reduced global platinum production
by more than 20% and global palladium production by
10%. This has significantly tightened market conditions,
not least because global car sales and industrial demand
have improved and investors continued to invest in these
precious metals. As a result, it is likely that both the
platinum and palladium markets will experience a supply
shortage this year. However, in our prognoses for 2014 we
have taken into account that investors will reduce their
positions in both precious metals. This will ease market
conditions. Platinum mining companies in South Africa are
currently in a rationalisation phase to make operations
profitable again. In 2013, total cash costs of the two
biggest platinum and palladium mining companies were
between USD 1,750 and 1,900 per ounce (for platinum). It
is likely that the five-month strike has pushed these costs
even higher.
500
…not so for gold
400
In 2013, the gold mine supply was abundant and we
300
expect this to continue through 2014. In general, the
200
current gold price remains attractive enough to continue
100
production. However, the total supply will be lower as we
0
anticipate a lower gold scrap supply. For 2015, we foresee
99
01
03
05
07
09
Gold
Platinum
11
13
15
Silver
Palladium
similar developments on the supply side. But it is likely that
the sharp drop in gold prices we expect for 2014 and 2015
(mainly because of lower investment demand) will prompt
mining companies to close unprofitable mines. Therefore,
Source: Thomson Reuters Datastream, ABN AMRO
supply will fall further in 2016. But as we expect supply to
outstrip total demand in 2014 and 2015, the pressure on
prices will remain. For 2016, we foresee a price recovery,
ABN AMRO price forecast table
supported by lower mine supply and strong demand.
3m
6m
12m
(end of
Oct)
(end of
Jan)
(end Jul
of‘15)
1,200
1,100
900
2014
avg
2015
avg
1,250
925
total cash costs of mining companies that report financial
Gold:
- USD/oz
18.0
16.5
18.0
19.0
18.0
1,400
1,300
1,400
1,425
1,400
Platinum:
- USD/oz
Palladium:
- USD/oz
data. This group of companies accounts for roughly 55%
of annual mine supply. The total cash cost is still far below
Silver:
- USD/oz
The first graph on the left shows the weighted average of
800
750
800
800
775
the current gold price, which means there is room for gold
prices to fall before mining companies sharply adjust
production. As a result, it unlikely this will provide price
support in 2014 and 2015. On the contrary, the prospect of
lower gold prices could motivate mining companies to
Source: ABN AMRO Group Economics
hedge again, resulting in more gold coming to the market.
Upside risks to our forecast:
Downside risks to our forecast:
•
•
•
•
Inflation fears trigger gold buying
Fed on hold for longer, supporting precious metals
Further supply disruption in platinum and palladium
•
•
Risk aversion triggers investors to abandon positions
Weaker global economy hurts platinum and palladium
Larger-than-expected mine supply
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Base metals: aluminium, copper, nickel, zinc
Casper Burgering, tel. +31 20 383 26 93
Robust sentiment supporting base metal prices
•
Investor jitters decreased on solid macro-economic figures from China and the US
•
Alongside the pick-up in major economies, conditions in most metals markets are improving
•
The two current jewels in the base metals complex are aluminium and zinc
Prices in base metal markets rebound strongly
Concerns over the Qingdao probe have slowly subsided
and the jitters among investors decreased further once the
solid macro-economic figures on the Chinese and US
economy were released in early July. As a result, base
metal prices increased. But other events also helped to lift
prices. The Chinese government announced support
measures in order to meet the growth objectives for this
year. Metal markets indirectly benefitted from measures
such as increased infrastructural spending, support for the
property market and local governments. Chinese industrial
activity visibly picked up speed. In Europe, industrial
production surprised to the downside in May, which was a
disappointment for metal markets. Sentiment in the US is
positive amongst manufacturers and industrial activity has
increased strongly during May by 4.3% yoy. The US
industrial production is expected to expand strongly in H2.
In addition, residential construction is exhibiting higher
growth since the start of 2014, as housing starts have
increased by 6% yoy. Investors’ newfound confidence in
base metals markets resulted in strong price gains for
aluminium and zinc since the start of July (up 4% and 6%,
respectively). Prices for copper and nickel also
appreciated, but at a slower pace (between 1-2% in the
same period).
Price index base metals 2014
160
index (1 Jan 2014 = 100)
150
140
130
120
110
100
90
80
Jan
Feb Mar
Aluminium
Nickel
Apr
May
Jun
Copper
Zinc
Jul
08
14
Source: Thomson Reuters Datastream
Base metals balance until 2016
5000
4000
3000
'000 tonnes
2000
1000
0
-1000
-2000
98
00
02
04
06
10
12
Aluminium balance
Copper balance
Nickel balance
Zinc balance
16
Source: Metal Bulletin
Base metals stocks in weeks of consumption until 2016
40
stocks in weeks of consumption
10
35
6
30
25
20
15
10
5
7
5
11
5 6 6
8 5
4 6 5
4 5
4
5
7
5 6 5 5
3
4
3
2 2
10 10 8 9 9 9 7
7
0
00
02
9
8 7 8 8
8
10 10 11 10
6 7
3 7 4 3
3 3 3 3 3 3
6
3
3
14 13 12 12 12 12 12 12
6 8
4
7
98
7
04
3
3
2
6
06
08
10
12
14
Aluminium stocks
Copper stocks
Nickel stocks
Zinc stocks
Source: Metal Bulletin
16
Fundamentally base metal markets are improving
Alongside the pick-up in the economies of major metalconsuming regions (China, Europe, US), conditions in
most metal markets are pointing up. From a fundamental
perspective, conditions in base metals markets have
recently improved. With a decrease in base metal refined
output (for various reasons, such as permanent capacity
shutdowns, maintenance programmes and other problems
at production facilities) the outlook for supply has changed
(from surplus to deficit). Given the expectation of (full-year)
deficits in the period 2014-2016 for aluminium and copper,
and generally balanced markets for nickel and zinc, the
outlook for the total market balance improved. Total base
metals stocks are already decreasing. And inventories of
aluminium, copper and zinc at LME warehouses have
fallen since last quarter. Aluminium stocks declined ‘mildly’
(by 6.5% since Q2), while stocks of copper and zinc
dropped by much bigger numbers: 34.9% and 18.6%,
respectively. Nickel stocks, however, increased by 9.9% in
the same period. As a result, sentiment in the base metals
markets is positive again, which has lifted prices. However,
stocks measured in weeks of consumption will remain
stable in the period 2014-2016, which will have a
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Base metals: aluminium, copper, nickel, zinc
China base metal balance until 2016
'000 tonnes
2000
1000
0
-1000
-2000
-3000
-4000
-5000
98
00
02
04
06
08
10
12
14
Aluminium balance - China
Copper balance - China
Nickel balance - China
Zinc balance - China
16
Source: Metal Bulletin
ABN AMRO price forecast (index)
700
forecast
ABN
AMRO
600
500
400
index (1999=100)
11
dampening effect on prices in the forecast period.
China is the driving force for metal markets
Although from a global economic and fundamental
perspective conditions have improved (and are expected
to stay solid), much still depends on developments in
China. The country accounts for almost 47% of the global
base metals demand on average (EU: 17% on average,
US 9% on average). The base metals balance for China
will remain in negative territory until 2016 for most base
metals, which indicates that import demand will probably
stay high, as domestic consumption outpaces domestic
supply. Demand from China continues to be a key element
to monitor and shocks in the country’s metal markets (e.g.
the Qingdao probe, the domestic bond default) generally
have massive implications for base metal prices. Still,
global base metal markets will also benefit from stimulus
measures taken by the Chinese government. China has
already implemented some stimulus measures and/or
policies for the (indirect) benefit of metal-consuming
sectors (such as strengthening of the real estate sector
and housing). And going forward, the Chinese government
is expected to implement more stimulus to meet its growth
objective of 7.5% yoy in 2014. This will have a positive
impact on base metals market globally.
300
200
100
0
99
01
03
05
Aluminium
07
09
Copper
11
13
15
Nickel
Zinc
Source: Thomson Reuters Datastream, ABN AMRO
ABN AMRO price forecast (actual)
3m
6m
12m
(end of
Oct)
(end of
Jan)
(end of
Jul ‘15)
2,050
1,930
0.93
0.88
7,140
3.24
2014
avg
2015
avg
1,975
1,825
2,050
0.90
0.83
0.93
7,230
7,300
7,050
7,200
3.28
3.31
3.20
3.27
18,300
19,000
18,900
17,500
18,000
8.30
8.62
8.57
7.94
8.16
2,230
2,200
2,275
2,150
2,250
1.01
1.00
1.03
0.98
1.02
Aluminium:
- USD/tonne
- USD/lb
Copper:
- USD/tonne
- USD/lb
Nickel:
- USD/tonne
- USD/lb
Zinc:
- USD/tonne
- USD/lb
Source: ABN AMRO Group Economics
Outlook for base metal prices remains positive
Base metals are once again among the favourite picks of
investors. But the two current jewels in the base metals
complex are aluminium and zinc. Overcapacity in the
aluminium sector in China is persistent (which will limit a
significant price increase), but is expected to fade during
2015. Positive for sentiment is the continuing decrease in
inventories. We expect that capacity cuts at high-cost and
inefficient (highly polluting) production facilities will
increase in the coming years. And prospects for aluminium
demand will remain relatively good, with an increase in
demand from the automotive sector. Zinc prices are
expected to increase further, due to a decrease in
production growth figures from existing mines and the
prospect of mine closures, in combination with limited new
large mining projects in the pipeline and suspended mining
on start-up problem with greenfield projects. Demand is
also expected to remain robust, with expected increases in
output for global automotive, construction and
manufacturing sector. In this perspective, we foresee that
demand for copper will also remain solid. Chinese copper
concentrates imports increased strongly on both a yearly
and a monthly basis. Until June, imports of concentrates
had already increased by 22% yoy. Therefore we foresee
stronger prices for copper, although the pace of the
increase is slow relative to other base metals. Meanwhile,
the nickel price is currently in a wait-and-see mode.
Participants are uncertain, due to the results of the
presidential elections in Indonesia and possible softening
of the export ban on nickel ore.
Upside risks to our forecast:
Downside risks to our forecast:
•
Geopolitical issues and governmental regulations
•
•
Stronger-than-forecast Chinese economic performance
Significant cutbacks in overcapacity (China)
•
•
•
Funds scaling back interest for base metals
Weaker-than-expected growth in Chinese economy
Limited producers discipline: oversupply in markets
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Ferrous metals: steel (global, HRC), iron ore, coking coal
Casper Burgering, tel. +31 20 383 26 93
Weak price environment due to overcapacity
•
Global steel industry was unable to benefit from the economic optimism in Q2
•
Weak iron ore prices increase the risk of default for (private) Chinese iron ore producers
•
Oversupply remains the biggest hurdle for the ferrous industry and will keep prices soft
Price index ferrous metals 2014
110
100
index (1 Jan 2014
90
80
70
60
Jan
Feb
Mar
Apr
May
Jun
Global steel (HRC, avg.)
Iron ore (fines)
Prime coking coal (Australia)
Jul
Ferrous metals prices retreat
The weak price environment lingers on. The global HRC
steel price lost 3% since the start of 2014, while prices for
steelmaking raw materials dropped by double digits. Iron
ore lost almost 30%, while prices for coking coal weakened
by more than 25%. As a result, margins improved for steel
mills. But the state of the ferrous industry remains
depressed (on overcapacity) and the sector was unable to
sufficiently benefit from the economic optimism at the end
of Q2 (marked by good data from both the Chinese and the
US economies). Hopes are now up for stimulus measures
in China. But with the upcoming seasonal slowdown,
relatively weak demand levels and persistent supply
additions in the ferrous sector, we do not expect significant
improvements in market conditions in the short term.
Source: Thomson Reuters Datastream
Steel production & world trade
50%
40%
30%
20%
% yoy
10%
0%
-10%
2010
2011
2012
2013
2014
China steel production
World steel production (ex. China)
World trade
US steel prices stable, global price weakness persists
Globally, steel market sentiment is still depressed. While
steel production increased until May, consumption
contracted in many parts of the world. In China and Europe,
the declines in HRC prices were relatively strong, namely
5% and 6%, respectively. In the US, HRC prices were fairly
stable and concerns about dumping by foreign mills
increased. The relatively high price in the US is attracting
supplies from foreign mills, which are eager to export their
oversupply at lower prices. In any case, the demand
outlook for the steel industry is improving: property sales in
China stabilised in May and June and home sales in the US
are increasing further. In Europe, conditions are slowly but
steadily improving. Still, we foresee limited price gains due
to continued oversupply in the global steel industry.
Source: Thomson Reuters Datastream, PCB, WSA
Chinese imports iron ore & steel production
9000
8000
7000
6000
10,000 Mt
12
5000
4000
2010
2011
2012
2013
Chinese imports iron ore
Chinese steel production
Source: Thomson Reuters Datastream
2014
Iron ore oversupply weighs on prices
Up to June, Chinese import demand for iron ore had
increased by a significant 19% on a yearly basis. But even
with this strong increase in demand by the world’s biggest
iron ore consumer, price weakened. Iron ore prices fell
sharply in the light of fraud investigations at the Qingdao
port into the possibility that the same stocks of iron ore
were pledged several times as collateral to get financing. In
the end, the effect of the strong Chinese import demand
growth probably softened an even stronger drop in iron ore
prices. There is currently more than sufficient stock in the
international market to service demand and this oversupply
weighs heavily on prices. Weak iron ore prices also
increase the risk of default for (private) Chinese iron ore
producers, who are generally well positioned at the end of
the iron ore cost curve. Iron ore production in China has
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Ferrous metals: steel (global, HRC), iron ore, coking coal
Import coking coal per country
10000
8000
6000
4000
Mt
2000
0
03 04 05 06 07 08 09 10 11 12 13 14
Japan import
S. Korea import
Germany import
China import
Source: Thomson Reuters Datastream, Clarksons
ABN AMRO price forecast (index)
300
forecast
ABN
AMRO
250
200
150
index (2006=100)
13
100
50
0
99
01
03
05
Steel
07
09
Iron ore
11
13
15
Coking coal
Source: Thomson Reuters Datastream, ABN AMRO
ABN AMRO price forecast (actual)
3m
6m
12m
(end of
Oct)
(end of
Jan)
(end of
Jul ‘15)
549
555
97
107
2014
avg
2015
avg
570
570
560
99
96
104
98
109
112
118
123
Steel
(global, HRC):
- USD/tonne
Iron ore:
- USD/tonne
Coking coal:
- USD/tonne
Source: ABN AMRO Group Economics
already slowed somewhat on the weaker iron ore prices.
Given the fragile price environment, we expect that a
portion of the high-cost supply in China will be forced to
stop production this year. But the amount of cuts will most
likely not be sufficient to balance the iron ore market. Stateowned mines (in most cases highly integrated with
domestic, state-owned steel mills) will continue to operate,
even when iron ore prices fall below their cost base. We
therefore think that, given the ample supply and relatively
high level of inventories (at ports, mills and mine sites), iron
ore prices will soften further this year and next. In addition,
there are still new iron ore mining projects in the pipeline,
which will come on stream in the coming years.
Sentiment is fragile in the coking coal market
Steel production in China was up 4.9% yoy until May, but
Chinese coking coal demand failed to show comparable
growth figures. Chinese import demand for coking coal
dropped by 17% yoy up to May. Physical coal demand was
mainly serviced by existing inventories at ports. Meanwhile,
buyers and traders are not very keen on buying too much
material, as they expect prices to weaken further over the
coming months. Traders would rather await firmer demand
from end-users before placing additional coking coal
bookings. At the moment, supply is outpacing underlying
demand, which is causing weakness in coking coal prices.
Only further mine closures, (significant) capacity cuts in the
international coking coal markets, but also strong demand
from the steel sector could turn the current low-price
environment into one of recovery. So far, we have seen few
indications of significant positive changes in market
dynamics. On the bright side, however, the availability of
coking coal in China is currently at a relatively low level due
to the rundown in stocks. This could indicate a possible
increase in buying activity for coking coal during Q2 to
replenish stocks. Still, the question remains whether this
fresh demand could restore balance. We don’t expect any
significant increases in demand as buyers are still having
trouble raising liquidity to source material. This is due to the
more stringent conditions on bank lending in China. But the
supply side is also adding to the problem. There is still a
large group of producers with surprisingly little incentive to
cut capacity. Instead, they are opting for an increase in
productivity in order to decrease unit costs (and protect
margins) while awaiting better times. Others have cut
production and/or mothballed projects, or increased
efficiency, which could start to have an effect during H2.
However, all in all, we expect that demand for coking coal
will remain relatively soft until 2015. Supply growth will
outpace demand growth in this period, which means that
oversupply will remain an issue. Two years from now, we
expect that the market will be fairly balanced and that
hence, the outlook for price is more favourable.
Upside risks to our forecast:
Downside risks to our forecast:
•
•
•
•
Stronger-than-expected Chinese economic growth
Severe supply disruptions due to unfavourable weather
Stockpiling strategies by governments
•
•
New mining capacity entering the market
Weaker-than-expected Chinese economic growth
Limited producer discipline, oversupply lingers on
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Agriculturals: wheat, corn, soybeans
Frank Rijkers, tel. +31 (0)20 628 64 37
Always take the weather with you
•
Great weather conditions led to higher production projections for all grains
•
A severe El Niño seems less likely
•
Next months, average prices will reach lowest levels in five years
Price index agriculturals 2014
150
index (1 Jan 2014 = 100)
140
130
120
110
100
90
Jan
Feb Mar
Wheat
Apr
May
Corn
Jun
Jul
Soybean
Source: Thomson Reuters Datastream
720
250
690
200
660
MT
MT
Wheat production, consumption and stocks
150
630
100
600
50
570
540
0
07/08
production
09/10
11/12
consumption
13/14
carryover stocks (r.a)
Source: IGC
1000
200
800
MT
Corn production, consumption and stocks
MT
14
150
600
100
400
50
200
0
0
07/08
production
Source: IGC
09/10
11/12
consumption
13/14
carryover stocks (r.a)
Grain prices collapsed in second quarter
After a strong price increase of all grain prices from
February to April, prices started to decline from mid-May.
The price of wheat rose particularly strongly, increasing
nearly 40% since the beginning of the year to its top price
of 742 USDc/bushel in May. The reasons behind the
strong price increases were the political tensions between
Russia and Ukraine, which is a top-five wheat exporter,
and bad weather in several important production areas in
the US and Canada. Since the weather has changed and
the production projections for this season are positive. The
wheat prices have since mid-May dropped by more than
40% to the lowest price in a year: 520 USDc/bushel. The
prices of corn and soybeans
increased since the
beginning of the year, between 15 and 20%. And for corn
and soybeans, too, favourable production projections
prompted a huge price decline from mid-May to a 12month low of 373 USD/bushel for corn and 1,267
USDc/bushel for soybeans
Great prospects for crop production
In its latest market report, the International Grain Council
(IGC) lifted the output projection for all grains. For
2014/2015 it expects wheat production to reach 699 mt.
This is a decrease of 1% compared to last season’s alltime high, but is still 21 mt above the five-year average of
678 mt. The elevated production forecasts are due to
increases in Chinese, Indian and European projections.
Wheat consumption is expected to remain at a level of 697
mt. The demand for feed wheat will likely continue to be
capped by attractively-priced corn. Direct use for human
food continues to drive most of the annual gain in world
wheat demand. With supply and demand expected to be
virtually balanced, world wheat stocks are forecast to show
little upward change at the end of 2014/2015.
The outlook for corn is also positive for the 2014/2015
season. Production is projected at 963 mt, 1% lower than
last season’s record but 10% higher than the five-year
average of 872 mt. Improved projections in the US and
China, assuming good weather conditions, led to higher
production forecasts. Consumption of corn is seen
reaching a record high level of 950mt. An important reason
for this is the expectation of increased feed and industrial
consumption in light of the low prices. Demand for corn as
human food will remain at the same level worldwide, with a
slightly increase in sub-Saharan Africa. Global closing
stocks at the end of 2014/2015 are projected to expand for
the fourth year in a row, reaching 180 mt, which would be
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Agriculturals: wheat, corn, soybeans
the highest figure since the late 1980s.
MT
350
100
300
MT
Soybeans production, consumption and stocks
80
250
200
60
150
40
100
20
50
0
0
07/08
09/10
production
11/12
13/14
consumption
carryover stocks (r.a)
Source: USDA
ABN AMRO price forecast (index)
400
forecast
ABN
AMRO
350
300
250
200
index (1999=100)
15
150
100
50
According to the United States Department of Agriculture
(USDA), the production outlook for soybeans for the
2014/2015 season is tentatively projected to expand by
6% year-on-year, to a record of 305mt. This is the result of
increased plantings in the US and an even greater
increase in Brazil, despite a decline in China and
uncertainty concerning India (as a world top five producer)
given the likelihood of an El Niño event. Soybeans
consumption is also projected to rise to a record level of
286 mt, boosted by an increase in processing in China and
the Americas. With a difference between production and
consumption of 19 mt, the carryover stocks will rise for the
fourth consecutive year to a level of 85 mt.
Drivers in the coming months
A possible El Niño will be one of the drivers in the coming
months. The impact of El Niño depends on timing, duration
and severity. Previous impacts of El Niño has been
strongly on corn, with yield losses of 3% and wheat with
losses of 1,5%. Meanwhile, an El Niño event historically
had a positive effect on soybeans production, which has
historically increased over 3% during such an event.
However, as the odds of a strong El Niño have diminished,
according to the latest projections, the impact on most
grains will be minimal.
0
99
01
03
05
Wheat
07
09
Corn
11
13
15
Soybean
Source: Thomson Reuters Datastream, ABN AMRO
Aside from weather-related news, particularly the
development of an El Niño event, there are other important
drivers to watch. Speculative long positions could be
liquidated on profit-taking especially if funds need cash to
fight fires elsewhere. This could be seen in wheat and
corn, but soybeans longs could also be cut back as a
result of the large oversupply and stable demand.
ABN AMRO price forecast
3m
6m
12m
(end of
Oct)
(end of
Jan)
(end of
Jul ‘15)
2014
avg
525
525
-
550
375
375
-
400
1,150
1,050
-
1,200
Wheat:
- USDc/bu
Corn:
- USDc/bu
Soybeans:
- USDc/bu
Source: ABN AMRO Group Economics
A third driver is a possible Argentinian default which could
have an impact on soybeans production and trade. Our
view is that the negative impact would be minimal due to
the dependence on export revenues of soybeans.
Three-month price forecasts
With the market expecting a further increase in production
for wheat and corn due to the recent rise in USDA growth
rate projections, prices will ease further over the next six
months. For both wheat and corn, this will lead to the
lowest average annual price in five years in our view. The
price for wheat will reach a level of USDc 550/bushel, and
the average corn price will decrease to a level of USDc
400/bushel. Meanwhile, the price of soybeans will ease
slightly in the coming months. Favourable supply
projections and a balance in demand will lead to the lowest
average price level in four years, at USDc 1,200/bushel.
Upside risks to our forecast:
Downside risks to our forecast:
•
•
•
•
Production risks due to adverse weather in production areas
A sharper-than-expected increase in feed demand in Asia
Geopolitical tensions in main production areas
•
•
Decline in demand, due to lower growth in China
Decrease in the use of biofuels
More favourable weather conditions in production areas
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Agriculturals: sugar, coffee, cocoa
Hans van Cleef, tel. +31 20 343 46 79
Softs marked by weather events
•
El Niño and Indian monsoon proved supportive for soft commodities
•
Technical and speculative demand pushed prices higher, despite surpluses
•
More upside for cocoa, some downside risks for sugar, while coffee could remain range-bound
Price index agriculturals 2014
180
170
index (1 Jan 2014 = 100)
160
150
140
130
120
110
100
90
Jan
Feb
Mar
Coffee
Apr
May
Cocoa
Jun
Jul
Sugar
Soft commodities weather-oriented
Weather-related events had a serious impact on soft
commodity prices in recent months. In particular, the
extreme drought in Brazil, which impacted the 2014/2015
crop, added major support to Arabica coffee prices. The
harvest is now nearly at an end and, as the market draws
up the balance sheet, coffee prices have stabilised as the
initial negative reactions have subsided. Meanwhile,
India’s monsoon rains are more than 50% below the 50year average. Market talks suggest that this will be
supportive for sugar cane prices. Nevertheless, given that
the water reservoirs are currently full, the immediate
effects will be limited. Still, the impact on the next sugar
crop could be bigger if the monsoon conditions remain
significantly below normal.
Source: Thomson Reuters Datastream
CFTC non-commercial net positions
250,000
200,000
150,000
100,000
contract
50,000
0
-50,000
2010
2011
Sugar
2012
Coffee
2013
2014
Cocoa
Source: Thomson Reuters Datastream
Coffee and sugar production vs consumption
200
180
160
140
120
100
Mt
16
80
2000/01
2004/05
Sugar production
Sugar consumption
Source: ISO, USDA
2008/09
2012/13
Coffee production
Coffee consumption
Expectations for other 2014/2015 global harvests may
change over the coming months given the potential of an
El Niño weather phenomenon developing in the second
half of this year. Since the first signs of an El Niño event
emerged, prices of soft commodity futures - like cocoa and
sugar - found support as the risk of lower crop yields
increased. If this leads to another period of dry weather in
central south Brazil, it could result in lower yields next
season. This, in turn, may add even more support to sugar
prices. Meanwhile, the expectations for the 2014/2015
coffee harvest also remain cautious. The first signs are
less pessimistic than a few months ago. However, a better
estimate of the actual effects of the Brazilian drought on
next years’ crop (2015/2016) can only be made after the
upcoming flowering season and the normal dry season
(from September until November).
Rising cocoa, sugar prices in oversupplied markets
Since reaching a low in January of USD 2,642, ICE cocoa
future prices have since appreciated by almost 20% to a
three-year high. ICE sugar future prices also rallied by
almost 30%. These rallies were mainly driven by technical
and speculative aspects and were not reflective of the
fundamental market conditions. In fact, after recent strong
cocoa production figures in West Africa (both main crop
and mid-crop) market expectations are for a small-scale
surplus (approximately 20-40,000 tonnes) instead of an
80-100,000 tonne deficit, as earlier prognoses indicated.
We expect cocoa prices to continue their uptrend towards
USD 3,100/tonne on the back of strong demand.
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Agriculturals: sugar, coffee, cocoa
Robusta vs Arabica coffee price (2nd contract)
3,000
350
2,500
300
250
2,000
200
1,500
USD/t
100
500
50
0
2009
USDc/lbs
150
1,000
0
2010
2011
2012
2013
Robusta coffee (lha)
2014
Arabica coffee (rha)
An oversupply is also expected for raw sugar in the near
term. According to the latest International Sugar
Organisation (ISO) data, there is a 4.4 million tonne
oversupply. Nevertheless, investors still have large net
long positions based on expectations of a tight sugar
market in 2014/2015. That would be the first deficit year
after four seasons of surplus. Unica – the Brazilian
sugarcane Industry Association – will revise its outlook at
the end of July. Any adjustment may lead to shifts in
speculative positions. With the market fearing the worst
concerning the Brazilian sugar crop, any positive surprises
could result in profit-taking. This, combined with
uncertainties about next year’s crop, could keep future
prices around the current level. Our three-month outlook is
USDc 19/lb.
Source: Thomson Reuters Datastream
ABN AMRO price forecast (index)
index (1999=100)
17
450
400
350
300
250
200
150
100
50
0
forecast
ABN
AMRO
99
01
03
05
Coffee
07
09
11
Cocoa
13
Sugar
Source: Thomson Reuters Datastream, ABN AMRO
ABN AMRO price forecast
3m
6m
12m
(end of
Oct)
(end of
Jan)
(end of
Jul ‘15)
19.00
19.00
18.00
180
170
175
2,100
2,150
2,050
3,100
3,200
3,025
2014
avg
Sugar:
- USDc/lb
Arabica Coffee:
- USDc/lb
Robusta Coffee:
- USD/tonne
Cocoa:
- USD/tonne
Source: ABN AMRO Group Economics
15
Arabica versus Robusta
Compared to the large price swings in Arabica, the price
developments in Robusta have been less pronounced (see
graph). After the excellent production in Vietnam,
warehouses in Ho Chi Minh City are completely filled. It is
estimated that just under one-fifth of the coffee crop is still
in the hands of the farmers and will be sold in the coming
weeks. Overall, the Robusta market is well balanced. As
expected, several roasters have indeed increased their
prices, and more will follow in the coming months. As a
result of the enormous price decline in Arabica from mid2011 to November 2014, roasters began to see better
value in Arabica compared to Robusta, allowing them to
accommodate more in their blends. The strong rebound of
Arabica prices has not yet been strong enough to
persuade the industry to switch back to Robusta. For that
to happen, the price of Arabica must remain substantially
higher and for a longer period of time. Nevertheless,
although demand for Robusta will remain strong, Vietnam
will most likely continue to increase its yields in response
to recent rally of Arabica prices. Robusta will most likely
continue to follow the price developments of Arabica. For
now, while the 2014/2015 crop is finalised and in
anticipation of the flowering season that will enable
evaluation of possible 2015/2016 crop losses, we expect
Arabica prices to remain range-bound.
Drivers in the coming months
In addition to weather-related news, particularly the
development of an El Niño event, there are other important
drivers to watch. Speculative long positions could be
liquidated on profit-taking, especially if funds need cash to
fight fires elsewhere. This could be seen in cocoa, but
sugar longs could also be cut back as a result of the large
oversupply and weak demand. For coffee, new important
factors to consider are the changes to warehouse rules
effective from September. These have resulted in firmer
forward structures for the rest of the year.
Upside risks to our forecast:
Downside risks to our forecast:
•
•
•
•
Upcoming crops suffer more damage than expected
Another period of serious drought in Brazil
Asian demand for cocoa rises faster than expected
•
•
El Niño does not emerge
Impact of Brazil’s 2014 drought has faded
Funds scale back interest in cocoa and sugar
18
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Macro-economic indicators
Macro-economic Forecasts ABN AMRO Group Economics (per 2 July 2014)
GDP growth (% y-o-y)
US
China
Japan
EU
UK
Germany
World
Inflation (CPI, % y-o-y avg)
GDP per cap USD
2012
2013
2014e
2015e
2012
2013
2014e
2015e
2013
2.8%
1.9%
1.8%
3.8%
2.1%
1.5%
1.9%
2.1%
53,101
7.7%
7.7%
7.5%
7.0%
2.6%
2.6%
2.5%
2.8%
9,844
1.4%
1.5%
1.5%
1.4%
-0.1%
0.4%
2.5%
1.7%
36,899
-0.6%
-0.4%
1.3%
1.8%
2.5%
1.3%
0.6%
0.9%
31,571*
0.3%
1.9%
3.0%
2.8%
2.8%
2.5%
1.6%
1.7%
37,307
0.9%
0.5%
2.1%
2.3%
2.0%
1.5%
1.0%
1.3%
40,007
3.0%
2.9%
3.2%
3.8%
3.9%
3.8%
3.9%
3.7%
11,964*
* = 2012
Regional Manufacturing PMIs
Consumer prices per region (CPI, % yoy)
World trade (volume index) and yoy % change
Commodity Indices
Consulted sources for this publication: Economic forecasts & insights from ABN AMRO Group Economics, Metal Bulletin, CRU, Commodities Now,
Mining Journal, Bloomberg, IGC, WSA (IISI), ISSB, NBS, IGC, IEA, Baker Hughes, ICCO, ICO, USDA, China Mining, Clarkson Research Services, ABARE,
AME, Thomson Reuters Datastream, World bank, ECB, Eurostat, IMF, CPB
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Historical commodity price developments
Oil: Brent and WTI
Gas: Henry Hub & Title Transfer Facility
160
18
140
16
120
14
12
100
10
80
8
60
6
USD/mmBt
USD/bbl
40
20
0
00
02
04
06
08
10
12
4
2
0
05
14
Crude Oil-Brent
Crude Oil-WTI Spot Cushing
06
07
08
09
Henry Hub Gas
Precious metals: Gold
10
11
12
13
14
TTF Gas
Precious metals: Silver
2000
6000
1800
5000
1600
1400
4000
1200
3000
800
USDc/troy ounce
USD/troy ounce
1000
600
400
200
0
00
02
04
06
08
10
12
2000
1000
0
14
00
02
04
Gold Bullion
06
08
10
12
14
08
10
12
14
08
10
12
14
Silver
Precious metals: Platinum
Precious metals: Palladium
1200
2500
1000
2000
800
1500
USD/troy ounce
USD/troy ounce
600
1000
500
0
00
02
04
06
08
10
12
400
200
0
00
14
02
Platinum
04
06
Palladium
Base metals: Aluminium
Base metals: Copper
3500
12000
3000
10000
2500
8000
2000
6000
1500
4000
1000
500
USD/t
USD/t
19
0
00
02
04
06
08
LME-Aluminium 99.7% Cash
10
12
14
2000
0
00
02
04
06
LME-Copper Grade A
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Historical commodity price developments
Base metals: Nickel
Base metals: Zinc
60000
50000
40000
30000
10000
USD/t
USD/t
20000
0
00
02
04
06
08
10
12
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
14
00
LME-Nickel Cash
02
04
06
08
10
12
14
LME-SHG Zinc 99.995% Cash
Ferrous metals: Global steel prices (HRC)
Ferrous metals: Iron ore & Coking coal
1200
350
1000
300
250
800
200
600
150
100
200
50
USD/t
USD/t
400
0
00
02
04
06
08
10
12
0
14
06
07
08
09
10
11
12
13
14
10
12
14
12
14
Iron Ore Fines (63.5%)
Prime Coking Coal (Aus)
Global steel price
Agriculturals: Grains (wheat, corn, soybeans)
Agriculturals: Sugar
35
2000
30
25
20
1000
15
500
10
0
00
02
04
06
08
10
12
Wheat, 2nd future contract
Corn 2nd future contract
Soybeans 2nd future contract
14
USDc/lb
USDcents/bushel
1500
5
0
00
02
04
06
08
Sugar, 2nd future contract
Agriculturals: Cocoa
Agriculturals: Coffee
4000
350
3500
300
3000
250
2500
200
2000
150
1500
100
USDc/lb
1000
USD/t
20
500
0
00
02
04
06
08
Cocoa, 2nd future contract
10
12
14
50
0
00
02
04
06
08
Coffee, 2nd future contract
10
21
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Contributors & Disclaimer
All text and forecasts in this document have been finalised on 23 July 2014.
Group Economics:
Contact information ABN AMRO | Group Economics (in order of appearance):
Primary area of expertise:
Phone:
E-mail:
- Marijke Zewuster
Head Emerging Markets & Commodities
+31 20 383 05 18
[email protected]
- Georgette Boele
Precious Metals, top down
+31 20 629 77 89
[email protected]
- Hans van Cleef
Energy, sugar, cocoa, coffee
+31 20 343 46 79
[email protected]
- Casper Burgering
Ferrous and Non-ferrous metals
+31 20 383 26 93
[email protected]
- Frank Rijkers
Grains (wheat, corn, soybeans)
+31 20 628 64 37
[email protected]
- Theo de Kort
Information specialist
+31 20 628 04 89
[email protected]
E-mailbox of Group Economics: [email protected]
More information:
Websites Group Economics
-
Internet Group Economics (Macro Research and theme
reports, including commodities):
English: insights.abnamro.nl/en/
Dutch: insights.abnamro.nl/
All publications of ABN AMRO on macro-economics, commodity and sector developments can be found on:
insights.abnamro.nl/en. Follow Group Economics on Twitter: https://twitter.com/sectoreconomen
Other commodity research products of ABN AMRO Group Economics:
22
Quarterly Commodity Outlook | 25 July 2014
ABN AMRO Group Economics
Contributors & Disclaimer
Disclaimer & further information
© Copyright 2014 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO"), Gustav Mahlerlaan 10, 1082 PP Amsterdam /
P.O. box 283, 1000 EA Amsterdam, The Netherlands. All rights reserved. This material was prepared by ABN AMRO Group
Economics Sector Research and ABN AMRO Private Banking International. It is provided for informational purposes only and does
not constitute an offer to sell or a solicitation to buy any security or other financial instrument. While based on information believed to
be reliable, no guarantee is given that it is accurate or complete. While we endeavor to update on a reasonable basis the information
and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so. The opinions,
forecasts, assumptions, estimates, derived valuations and target price(s) contained in this material are as of the date indicated and
are subject to change at any time without prior notice. The investments referred to in this material may not be appropriate or suitable
for the specific investment objectives, financial situation, knowledge, experience, or individual needs of recipients and should not be
relied upon in substitution for the exercise of independent judgment. ABN AMRO or its officers, directors, employee benefit programs
or co-workers, including persons which were involved in preparing or issuing this material, may from time to time hold long- or shortpositions in securities, warrants, futures, options, derivatives or other financial instruments referred to in this material. ABN AMRO
may offer and render at any time investment banking-, commercial banking-, credit-, advice-, and other services to the issuer of any
security referred to in this material. Pursuant to offering and rendering such services, ABN AMRO may come into possession of
information not included in this material and ABN AMRO may prior or immediately after publication thereof have acted based on such
information. In the past year, ABN AMRO may have acted as lead manager or co-lead manager with regard to a public offering of
securities from issuers as mentioned in this material. The stated price of any securities mentioned herein is as of the date indicated
and is not a representation that any transaction can be effected at this price. Neither ABN AMRO nor other persons shall be liable for
any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from
the information contained in this material. This material is for the use of intended recipients only and the contents may not be
reproduced, redistributed, or copied in whole or in part for any purpose without ABN AMRO's prior express consent. This document is
solely intended for dissemination amongst private/retail customers. Distribution to private/retail customers in any jurisdiction that
would require registration or licensing of the distributor which the distributor does not currently have, is not permitted. Material means
all research information contained in any form including but not limited to hard copy, electronic form, presentations, e-mail, SMS or
WAP.
US Securities Law
ABN AMRO Bank N.V. is not a registered broker-dealer under the U.S. Securities Exchange Act of 1934, as amended (the "1934
Act") and under applicable state laws in the United States. In addition, ABN AMRO Bank N.V. is not a registered investment adviser
under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and
under applicable state laws in the United States. Accordingly, absent specific exemption under the Acts, any brokerage and
investment advisory services provided by ABN AMRO Bank N.V., including (without limitation) the products and services described
herein are not intended for U.S. persons. Neither this document, nor any copy thereof may be sent to or taken into the United States
or distributed in the United States or to a US person.
Other jurisdictions
Without limiting the generality of the foregoing, the offering, sale and/or distribution of the products or services described herein is not
intended in any jurisdiction to any person to whom it is unlawful to make such an offer, sale and/or distribution. Persons into whose
possession this document or any copy thereof may come, must inform themselves about, and observe any legal restrictions on the
distribution of this document and the offering, sale and/or distribution of the products and services described herein. ABN AMRO
cannot be held responsible for any damages or losses that occur from transactions and/or services in defiance with the restrictions
aforementioned.
Company disclosures
ABN AMRO may beneficially hold a major shareholding or a significant financial interest of the debt of this company. ABN AMRO
currently maintains a market in the security of this company and otherwise purchases and sells securities of this company as
principal. ABN AMRO has received compensation for investment banking services from this company, its subsidiaries or affiliates
during the previous 12 months.
Personal disclosures
The information in this opinion is not intended as individual investment advice or as a recommendation to invest in certain investments
products. The opinion is based on research of ABN AMRO Group Economics. The analysts have no personal interest in the
companies included in this publication'. Their remuneration for this work is not, was not and will not be related directly or indirectly to
the specific recommendations or views expressed in this opinion.