Soft Chinese growth helps metals supply catch-up
Central bank monetary stimulus pledges are becoming lesseffective while both the World Bank and IMF havedowngraded their global growth estimates and investors arebecoming increasingly concerned regarding the impending US“fiscal cliff”.
Signs of US economic improvements are being offset by thepersistent grim Eurozone outlook.
While the slowing Chinese economy showed tentative signs ofstabilization in September, neither a strong rebound nor panicdriven investment stimulus measures (such as occurred backin 2008-10) are likely.
Further downward revisions of global growth prospects andthe solid supply growth outlook are particularly negative forlong-term crude oil price projections.
We lower our H2-13 and FY-14 average price forecasts $5/b to$110/b while maintaining our Q4-12 estimate at $110/b andour H1-13 expectation at $105/b.
In the short- to medium-term the crude oil market is mainlysupported by geopolitical tension and tight middle distillatemarkets. OPEC policy and producer incentive prices alsoprovide a firm foundation.
Most metals are trading close to or below their marginalproduction costs as supply catches up with softer demandgrowth.
“The super cycle is over for high cost miners” was CRU’smessage to its LME week audience.
Small- and medium-sized mining companies may decreaseinvestments as a result of current high capital costs andfinancing problems.
Gold has seriously disappointed over the last month. Despitenear ideal conditions prices have failed to climb above$1800/ozt during the QE3 driven rally.
In the short- to medium-term we retain our main bullishscenario despite increased downside risks. Gold is unlikely tohold ground in a risk-off environment.
However, we raise our H2-13 average gold price forecast by$50/ozt to $1700/ozt due to the open ended QE3 support onoffer and weaker global growth forecasts.
AGRICULTURE 0-3 M
As expected, grain prices have begun to fall from last month’sexceptionally high levels with downside risks dominant in theshort-, medium- and long term.
However, we do not anticipate an imminent price collapsegiven current low inventories, adverse local weather and risksof hoarding and protectionism.
We expect persistent high short- to medium-term supplyconcerns potentially triggering temporary rallies in individualgrain prices.
Arrows indicate the expected price action during the period in question.
UBS Bloomberg CMCI Sector Indices
(price indices, weekly closing, January 2010 = 100)
j a n - 1 0 f e b - 1 0 m a r - 1 0 a p r - 1 0 m a j - 1 0 j u n - 1 0 j u l - 1 0 a u g - 1 0 s e p - 1 0 o k t - 1 0 n o v - 1 0 d e c - 1 0 j a n - 1 1 f e b - 1 1 m a r - 1 1 a p r - 1 1 m a j - 1 1 j u n - 1 1 j u l - 1 1 a u g - 1 1 s e p - 1 1 o k t - 1 1 n o v - 1 1 d e c - 1 1 j a n - 1 2 f e b - 1 2 m a r - 1 2 a p r - 1 2 m a j - 1 2 j u n - 1 2 j u l - 1 2 a u g - 1 2 s e p - 1 2 o k t - 1 2
Industrial MetalsPrecious MetalsEnergyAgriculture
(MSCI World, UBS Bloomberg CMCI price indices)
E q u i t i e s C o m m o d i t i e s E n e r g y I n d u s t r i a l m e t a l s P r e c i o u s m e t a l s A g r i c u l t u r e
YTD (%) M/M (%)
Winners & Losers over the last month
Z i n c S o y b e a n s A l u m i n i u m C o f f e ( A r . ) P a l l a d i u m S i l v e r L e a d G a s o l i n e ( U S ) N i c k e l C o p p e r G o l d W T I C o c o a ( U S ) P l a t i n u m W h e a t T i n C o r n P o w e r ( C o n t . ) B r e n t C o t t o n S t e e l b i l l e t s H e a t . o i l ( U S ) C O 2 ( E U A ) S u g a r P o w e r ( N o r d i c ) N a t . g a s ( U S )
Chart Sources: Bloomberg, SEB Commodity Research