Key themes
In the previous Commodities Market Guide, we highlighted that more hawkish central banks were a key downside risk to commodity prices in the near term. Since then, the Federal Reserve has hiked and begun talking about reducing its balance sheet, while there has been speculation in the market and media about the European Central Bank potentially raising rates later this year. The move towards tighter monetary conditions has taken its toll on commodity prices along with indications that the global industrial cycle is nearing a peak and that the market is starting to lose patience with Trump on the topic of increase in infrastructure spending. Stronger fundamentals on the oil and base metals markets have partly mitigated this negative impact, while increased focus on geopolitical risks has lent additional support to the oil price.
Oil
An extension of OPEC output cuts is about prices, while geopolitical risks are lending support as demand has started to wane. We look for prices to rise in H2, mainly on the back of stronger demand and a weaker USD. We recommend consumers to hedge exposure in the rest of 2017 and 2018.
Metals
The market is starting to lose patience with the lack of progress in the plan for higher US infrastructure spending. Prices to find support in weaker USD and stronger fundamentals. We recommend that consumers hedge exposure in copper and nickel and that producers hedge exposure in aluminium and zinc in the rest of 2017 and 2018.
Grains
Prices remain lower on strong output. Fundamentals could start to turn more positive for grain prices. Consumers should hedge 2017 and 2018 in CBOT wheat, CBOT soybean and rapeseed.
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