Key themes
In our previous Commodities Market Guide, we highlighted waning demand as a key concern for commodity markets. Since then, our concerns have materialised and should continue to influence price development into 2018. Much will hinge on whether the Fed will push forward with additional monetary tightening over the coming year, as this is not yet fully reflected in prices. In general, the supply situation has eased recently in the oil market and the base metals market. Positioning is currently net long oil, neutral copper and short wheat and soybean.
Oil
With the extension of OPEC output cuts out of the way, the market has turned its focus to weaker demand. We look for prices to rise next year, mainly on the back of a tighter market balance and a weaker USD. We recommend that consumers hedge exposure for the rest of 2017 and for 2018.
Metals
The global industrial cycle has peaked and there is still no news on the plans for an increase in infrastructure spending in the US. Prices should find support in a weaker USD and stronger fundamentals the coming year. We recommend that consumers hedge exposure in copper and nickel and that producers hedge exposure in aluminium and zinc for the rest of 2017 and 2018.
Grains
Prices remain low on strong output. Fundamentals could start to turn more positive for grain prices. Consumers should hedge 2017 and 2018 in CBOT soybean and rapeseed. Producers should hedge exposure in wheat.
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