15 January 2018
Commodities Quarterly
GlobalCommodities
Commodities
Quarterly
Date
15 January 2018
Deutsche Bank
Markets Research
Building on strength
Overview
Healthy medium-term fundamentals are poised to continue with PMI readings
remaining near 6-month highs across the US, Eurozone, China and other EM. Our
global growth forecast has been lifted from 3.7% to 3.8% for 2018. The trend of
slow supply growth and policy restriction continues, and we see further upside
for industrial metals in particular.
Crude Oil
The shift into backwardation in September 2017 has proved to be prescient, once
again marking a turning point. Prices have been strong in what is typically a
weak quarter for demand. Aordability remains moderate, and demand upside
appears possible amidst a supportive macro backdrop and US dollar weakness.
We raise 2018-19 Brent forecasts to USD 62/bbl in 2018-19, below spot owing to
our expectations for a stronger extension of the supply rebound in the US.
Precious Metals
We expect gold will shrug o worries of fundamental downside amidst the
unwind of accommodative central bank policy, and that the market premium
over fair value will widen. Our USD 1,283/oz forecast for 2018 incorporates
both our outlook for four Fed rate hikes and modest dollar weakness. Further
support for gold could also derive from the possibility that strengthening ination
expectations are a prerequisite for the tightening policy trajectory.
Industrial Metals
Industrial metals are our most favored sector across the commodity spectrum.
Supply-side reform, disruption, or slow supply growth and robust industrial
activity are combining to establish market decits broadly across Copper, Nickel,
Zinc and Aluminium, fueling material upgrades to our price decks over the
medium term. We see larger decits in copper which could be exacerbated by
further labour strikes, cuts of illegal Chinese aluminium capacity, and strong
demand for Nickel from stainless steel and battery production.
Bulk Commodities
We expect steel and iron ore to retrace from current levels as Chinese steel
production returns to normal from March, and additional seaborne iron ore supply
enters the market from the majors. Our estimate of the market surplus has risen
to 65Mt with supply rising by a further 2% in 2018 to 1,515Mt. In thermal coal, we
see a balanced market and expect China will eventually raise domestic production
to control power prices, lowering seaborne prices towards USD 90/t.
Michael Hsueh
Research Analyst
+44-20-754-78015
Patrick Jones
Research Analyst
+44-20-754-53400
Paul Young
Research Analyst
+61-2-8258-2587
Janeman Latul
PT Deutsche Verdhana Sekuritas Indonesia
Research Analyst
+62-21-2964 4569
Liam Fitzpatrick
Research Analyst
+44-207-541-3233
Patrick Mann, CFA
Research Analyst
+27-11-775-7282
Deutsche Bank AG/London
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.
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