Commodities Watch: A Week of Vital Shifts and Opportunities
Julie Fernandez, Senior Financial Analyst, Triangle Profits
Date: 23.11.2023
As we head into a pivotal week in the commodities market, several key factors are shaping the landscape, offering both challenges and opportunities for investors and analysts alike.
1. Crude Oil Dynamics: A Balancing Act Oil markets are currently caught in a whirlwind of evolving dynamics. Despite the International Energy Agency’s recent report indicating a smaller supply shortfall than expected, mainly due to robust production growth in the US and Brazil, OPEC+ analysts paint a different picture, forecasting a considerable supply-demand gap. This divergence of views, especially ahead of the crucial OPEC+ meeting, sets the stage for potential volatility in oil prices.
2. The Green Agenda: US-China Collaboration The US and China, global leaders in carbon emissions, have pledged to enhance their joint efforts in combating climate change. This commitment, made in the lead-up to the UN talks in Dubai, underscores the urgency to address global warming and could have significant implications for ‘green commodities’ such as renewable energy sources and emission-reducing technologies.
3. Copper’s Contango Concerns In the metals sector, copper presents an intriguing case. The current contango situation – where cash metal is trading at a notable discount – signals ample immediate supply. However, the market sentiment for 2024 is mixed, with expectations of a growing surplus despite potential mine output pressures.
4. Cocoa’s Soaring Prices A stark contrast is seen in the cocoa market, where prices are at a 45-year high due to shortages. With the major producers, Ivory Coast and Ghana, experiencing a lag in the harvest, fears of supply deficits are driving prices up, presenting a unique opportunity for Latin American producers to increase their market share.
5. Food Security Concerns At the Global Food Security Summit in London, the focus will be on addressing the critical issue of undernourishment affecting millions worldwide. Agricultural commodities are under pressure due to factors like drought, geopolitical conflicts, and supply chain disruptions, contributing to heightened food prices globally.
Goldman Sachs’ Commodities Outlook Adding to these points, Goldman Sachs forecasts a bullish 12-month outlook for commodities, expecting a 21% return on the S&P GSCI Commodity Index. This optimism is driven by factors including easing monetary policy, recession fears, and geopolitical supply risks.
6. Energy and Gold: Hedging Against Uncertainty Goldman Sachs also highlights energy and gold as effective hedges against supply shocks. The ongoing resilience in demand is anticipated to drive oil price recovery, despite a downward revision in Brent price forecasts for 2024.
7. Metals: A Dual Narrative While Goldman predicts a tightening in copper and aluminium stocks leading to price increases from the second half of 2024, Euromonitor International forecasts a downward trend for key industrial metals in Q3 2023 due to factors like slowing global economic growth and China’s post-pandemic recovery challenges.
Bright Spots in the EV Sector Amidst this, the demand for lithium, nickel, and other metals crucial for electric vehicle production remains robust. Despite this strong demand, lithium prices are expected to stabilize as supply-demand reaches a temporary equilibrium.
Conclusion: The coming week in the commodities market promises a blend of uncertainties and opportunities. Investors and market participants would do well to stay attuned to these developments, balancing risk with the potential for significant gains.