- Little chance of quick recovery in commodity prices
- Copper and gold preferred exposures
- Nickel's fundamentals remain poor
- Oil and coal markets conditions updated
By Chris Shaw
According to CIMB Bank, recent indicators suggest commodity market conditions are stabilising, though there is still little chance of any quick recovery given high inventories and a slower global growth outlook.
As well, CIMB sees little chance of a repeat of the massive stimulus packages of three years ago. This means there is little scope for price outperformance in the absence of any extraneous factors impacting on the market.
This is especially the case with the US fiscal cliff weighing over sentiment in the shorter-term. Longer-term CIMB suggests commodity markets are likely to be driven by whether government policies can manufacture a recovery in global growth.
China appears to be doing its part in delivering an improved outlook, as CIMB suggests risks of a hard landing in that economy have eased in recent months. But issues elsewhere, including the fiscal cliff in the US and sovereign debt in Europe, continue to pose risks.
For the US, CIMB estimates the tax increases and spending cuts associated with any fall over the fiscal cliff could cut from 3-4% from GDP growth in 1H13, though a compromise is expected to be reached before such a an issue arises.
A positive for the medium-term in the view of CIMB is producers are now moving away from supply at any cost to more cost effective supply, which is expected to push out anticipated surpluses in many markets that were being factored in as project pipelines surged in recent years.
CIMB also suggests resource nationalism is a growing issue affecting commodity market supply, as the likes of Indonesia look to ban exports. This issue is likely to remain until governments improve funding for necessary public expenditure, something CIMB suggests could help improve the supply-demand balance in many commodity markets.
With respect to preferred markets given current and expected conditions, CIMB's view is iron ore, aluminium and zinc prices face the strongest supply side headwinds, while copper, platinum and tin face the least.
Preferred exposures under the current environment are gold and copper, CIMB expecting a rally in the gold price towards US$1.900 per ounce over the next six months and sees copper as a beneficiary of any pick-up in economic activity.
In Deutsche Bank's view the fundamentals of nickel remain poor, with the market likely to be in surplus for the next few years at least. Supply growth in China continues to increase thanks to ongoing nickel pig iron capacity additions, while demand an expected improvement in demand through 2013 is unlikely to be enough to re-balance the market.
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