Key themes
The move by the People's Bank of China (PBoC) to cut its leading interest rates was an important step for commodity markets. First, in the short run, it supports economic growth in China and thereby China's demand for commodities. Second, it sends an important signal that, although growth in China looks to be on a structural downturn, politicians will not allow growth to decline too quickly.
Next year is set to bring higher global economic growth, further US dollar strengthening at the beginning of the year and a recovery in oil prices. In 2016, we are looking for global economic growth to stabilise, albeit at a modest level. Oil prices should stabilise as well. Note, in this edition of Commodities Forecast Update, we present our forecasts for 2016 for the first time.
Oil
We expect downward pressure on oil prices to prevail for the rest of the year, before a recovery in prices in 2015. In 2016, we expect prices to stabilise. In the near term, we await the outcome of the 27 November OPEC meeting. We have lowered our forecast for 2015 slightly since October. Our forecasts are above forwards, therefore we recommend clients on the consumer side hedge exposure in 2015 and 2016 at current low levels.
Metals
Although global economic growth is in a weak spot at present, the recent stimulus from the PBoC should support the market. In 2015, higher global growth should send base metal prices higher. In 2016, we expect prices to stabilise. Our forecasts are more or less unchanged from October. We recommend clients on the consumer side use the current low prices to hedge exposure in 2015 and 2016.
Grains
Mounting supplies are currently weighing heavily on grain prices. We have made slight upward revisions to our forecasts, reflecting a slight deterioration in the supply outlook. Overall, our forecasts are close to forwards. We recommend that clients hedge weather risks at current low levels.
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