Key themes
Commodity market fundamental factors were the key focus for the market at the beginning of the year following the implementation of the OPEC output cut deal, tightening of supply in the base metal market and La Niña weather passing through the grains and oilseeds market. In coming months, focus is more likely to turn to monetary policy in the US. Recently, the market has raised its expectations of a rate hike in the US in one of the coming months. Untimely monetary tightening in the US has been a key negative factor for commodity prices in recent years and thus something to watch out for. Commodity prices in general could take a hit if the Fed speeds up the path of normalisation of rates, or it could have a positive impact if it refrains from raising rates at the coming meetings.
Oil
OPEC and Russia's decision to cut output has lifted oil prices but market conditions have not tightened as expected, highlighted by rising US crude stocks. We look for prices to rise further, mainly on the back of stronger demand and a weaker USD. We recommend consumers hedge exposure in Q4 17 and 2018.
Metals
'Trumpflation' has hit the world base metals market, supporting prices in addition to the effect of higher global manufacturing activity and declining upstream supply. We recommend that consumers hedge exposure in nickel for the rest of 2017 and 2018 and copper in 2017 at current levels.
Grains
Prices remain lower on strong supply fundamentals. La Niña weather has not had a material impact on the market. Consumers should hedge 2017 and 2018 in CBOT wheat, CBOT soybean and rapeseed.
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