Nickel and gold are expected to be among the stronger performing commodities over the coming 12 months, but analysts are keeping a wary eye on iron ore, oil and battery metals given concerns about supply and the fallout from global trade tensions.
Oil prices will remain steered by the ability of OPEC and Russia to keep the global market in balance as the US shale producers lift output, while the red-hot lithium and cobalt markets will have to contend with a burst of supply from emerging producers.
China is in sharp focus given the voracious appetite for commodities from its resource hungry economy and as the Asian giant faces off against threats from Donald Trump to impose tariffs. While China’s economy is growing at an enviable pace, recent data has shown a slower pace of activity.
Iron ore prices are widely expected to soften with consensus forecasts suggesting that the steel-making ingredient will trade at about $US62 for the next 12 months
Credit Suisse analyst Matt Hope was a little more bearish than the market consensus, however, forecasting that iron ore would trade below $US60 in the new fiscal year.
“The housing boom in China is getting rather old and we’re not sure it can continue for another year,” he said. “We expect iron ore prices will come off if steel demand slows. There is no shortage of supply.”
Mr Hope remains similarly bearish on the price of copper, despite the market predicting a recovery, forecasting it will continue its recent slide.
“There seems to be a broad consensus in the market that there’s an impending copper mine supply deficit. However, we don’t believe that, as we think demand is not as strong as the Street believes,” said Mr Hope. “We expect the price to slide to around $2.80 a pound over the next 12 months.”
Nickel prices are forecast to rise during the next 12 months, with Macquarie analysts saying that the metal is their top commodity pick for the next 12 months. The analysts are forecasting a price rise of 30 per cent by March 2019, driven mainly by falling inventory levels.
It’s set to be a more “benign” year for aluminium according to Morgan Stanley who said in a note that order would be restored following the recent sanction and tariff disruptions, adding that any risks were weighted to the upside.
Gold prices are expected to strengthen in the next few months with UBS placing the yellow metal among their top commodity picks. Their price is in line with consensus forecasts and most analysts appear to be in agreement that the price will advance in the next 12 months.
The broker said in a note that Fed rate hikers were priced in, limiting further pressure on gold and that a potential US dollar correction, trade tariff tensions and seasonal demand would be supportive in the near-term, while monetary policy tightening would be supportive in the long-term.
Mr Bloxham of HSBC says he is expecting gold to rebound from its recent price weakness, although his forecasts fall short of the highs seen earlier this year.
“We see the gold price averaging around $US1280 an ounce in 2018 and lifting to a little over $US1300 an ounce in 2019,” he said. “Our long-term view on the gold price is $US1350 an ounce.”
UBS is forecasting silver prices to move higher although its gains will only be modest. “We expect silver to continue being driven by gold price action,” it said in a recent note. “Risks are skewed to the upside, but a convincing break seems challenging for now.”
Oil fundamentals are forecast to weaken in 2019 following a stronger 2018, as OPEC and non-OPEC supply increases according to JPMorgan. The bank’s analysts are forecasting upside risk for oil for the remainder of 2018 with geopolitical tensions and large supply disruptions likely to support the price in the next few months. Non-OPEC countries are expected to lead this rise, led in particular by US shale growth, along with Russia, Brazil, Canada and Kazakhstan.
In a note on Monday, Commonwealth Bank senior economist Kristina Clifton said that CBA were much more bullish on oil’s price, saying that prices would continue to rise through the next 12 months.
“CBA’s Commodities Research team have revised up their oil price forecasts,” she said. “The Brent oil price is expected to average $US79/bbl in 2018 and $US86/bbl in 2019. This represents an upward revision to the forecasts of around 21 per cent and 42 per cent in 2018 and 2019 respectively.”
Analysts remain divided on when lithium and cobalt production will move into surplus, with supply and demand forecasts varying wildly.
JPMorgan says that the lithium market will remain balanced for the remainder of the 2018 and that supply is unlikely to be outstripped by demand before 2025. The bank also said that cobalt would not see tightness in the market in the next 12 months however they did say that supplies looked more challenging beyond 2023.
Mr Bloxham of HSBC is similarly optimistic on lithium, believing that demand for the metal would continue to rise and run ahead of supply.
“Lithium is one of the most exciting commodities on the planet at the moment,” he said. “We expect more potential upside for lithium prices, as demand estimates continue to run ahead of current supply.”
Macquarie analysts, however, are remaining bearish on lithium and cobalt. The analysts say that both commodities will face a supply surge and are forecasting a price fall of more then 40 per cent in the next year.
McInnes, William. “Analysts Mixed on Base Metals but Say Precious Metals Will Rise.” Financial Review, Financial Review, 2 July 2018, www.afr.com/markets/analysts-mixed-on-base-metals-but-say-precious-metals-will-rise-20180628-h11yza.