Global Commodities Strategy

We are holding to our Brent and WTI price forecasts for 2014. WTI should remain fairly stable and average USD99/bbl, while improving supply will see Brent weaken to average USD105/bbl for the year.

  • Economic stimulus measures by the Chinese government pose short-term upside risks for metals prices. However, we maintain our bearish multi-quarter outlook on both Chinese economic growth and prices for key metals such as copper and iron ore ( see 'Piecemeal Stimulus Does Not Alter Core View', April 3).

  • Spot gold looks strong on a short-term basis as minutes from the US Federal Reserve's last meeting, released April 9, have modestly pushed back market expectations for timing of US monetary tightening. We expect renewed declines by gold towards USD1,200/oz in H214 as the US economy continues to gather steam.

  • Further Pullback Ahead?
    Ratio: MSCI World Equity Index / CRB Commodities Index
    • We are holding to our Brent and WTI price forecasts for 2014. WTI should remain fairly stable and average USD99/bbl, while improving supply will see Brent weaken to average USD105/bbl for the year.

    • Economic stimulus measures by the Chinese government pose short-term upside risks for metals prices. However, we maintain our bearish multi-quarter outlook on both Chinese economic growth and prices for key metals such as copper and iron ore ( see 'Piecemeal Stimulus Does Not Alter Core View', April 3).

    • Spot gold looks strong on a short-term basis as minutes from the US Federal Reserve's last meeting, released April 9, have modestly pushed back market expectations for timing of US monetary tightening. We expect renewed declines by gold towards USD1,200/oz in H214 as the US economy continues to gather steam.

    • This week we closed our bullish and bearish views on LIFFE cocoa and ICE coffee, respectively. Our cocoa view finished up by 1.8% and our coffee view down by 9.5%.

    • We continue to expect grain prices to average below spot levels in 2013, but see growing upside risks for wheat and soybean prices due to low US stocks for soybeans and deteriorating soil conditions for wheat.

    Although we expect commodity prices to continue underperforming developed market equities over the coming quarters, we do not rule out a further comeback by commodities in the near term. The two-year uptrend in the MSCI World / CRB Commodity Index ratio has stuttered in 2014 as developed market equities have struggled to convincingly break to new highs and commodity markets including grains, softs and energy have rebounded from Q413 lows. We will be watching for a break lower in the ratio as a signal that additional tailwinds for commodity prices could be forthcoming in the Q214. A boost for metal prices could stem from a larger Chinese economic stimulus than we currently anticipate, while grain prices could benefit from a more severe tightening of supply ahead of the Q314 northern hemisphere harvests than is currently being priced in.

    Further Pullback Ahead?
    Ratio: MSCI World Equity Index / CRB Commodities Index
    BMI Global Commodities Strategy
    Entry Date Entry Level Gain/(Loss) Rationale
    No open views na na na na
    Source: BMI
    BMI Commodities Strategy - Closed Views
    View Date Opened Date Closed Gain/Loss
    Bearish July 2014 ICE Coffee 21-Mar-14 07-Apr-14 -9.18%
    Bullish May 2014 LIFFE Cocoa 31-Jan-14 07-Apr-14 1.79%
    Bearish iron ore (SGX Asiaclear 3m Swap) 09-Jan-14 12-Mar-14 16.30%
    Bearish wheat (front-month CBOT) 27-Feb-14 03-Mar-14 -3.85%
    Bearish spot gold 27-Feb-14 03-Mar-14 -0.83%
    Bearish spot silver 13-Nov-13 06-Feb-14 4.28%
    Bearish three-month LME copper 27-Nov-13 27-Dec-13 -2.58%
    Bullish corn (Front-Month CBOT) 11-Nov-13 20-Nov-13 -2.39%
    Bearish rough rice (front-month CBOT) 29-Aug-13 15-Nov-13 4.90%
    Bullish platinum (spot) vs gold (spot) 29-May-13 28-Oct-13 1.74%
    Bearish iron ore (SGX Asiaclear 3m Swap) 05-Sep-2013 18-Oct-13 -1.45%
    Bearish iron ore (SGX Asiaclear 3m Swap) 16-Jan-2013 07-Aug-13 11.89%
    Bullish soybean/corn ratio (front-month CBOT) 05-Jun-2013 16-Jul-13 16.81%
    Bullish cocoa (front-Month LIFFE) 16-Apr-2013 28-May-13 0.00%
    Bullish coffee (front-month Arabica) 06-Dec-2012 23-May-13 -6.92%
    Bullish sugar (ICE #11 World, front-month) 11-Mar-2013 15-May-13 -9.88%
    Bullish palm oil (three-month MDE) 21-Feb-2013 17-Apr-13 -9.62%
    Bullish base metals (S&P GSCI Industrial Metals Total Return) 31-Jan-2013 21-Feb-13 -2.10%
    Bullish gold (spot) 02-Aug-2012 15-Feb-13 2.91%
    Bearish S&P GSCI Grains Index 13-Sep-2012 16-Jan-13 9.65%
    Bullish tin (three-month) vs LME Metals Index 20-Aug-2012 14-Jan-13 15.40%
    Bullish S&P GSCI Industrial Metals Index 08-Aug-2012 14-Dec-12 8.80%
    Source: BMI

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