Although I am not publishing a formal annual outlook this year, I have made a number of smaller forecasts in the media over the last few weeks, which I am collecting in blogs for your interest.
I produced the following comments for media in Norway:
2015 was a very rough year for most commodities. Not only did a rising US Dollar keep pressure on resource prices throughout the year, but a slowing economy in China cut into demand. A very strong El Niño, meanwhile, had a big impact on growing conditions for agricultural commodities which could continue into 2016.
The table below compares the performance of major commodities relative to the CCI commodity index and the US Dollar.
It was a particularly rough year for crude oil, natural gas , copper, platinum and coffee all of which posted 20% plus losses, grains took a smaller beating. On the other hand, a few agriculturals were able to post gains on the year led by cocoa but also including cotton, orange juice and sugar.
Although the long-term bear market in commodities continues, a number of markets have become quite oversold lately setting up the potential for near term trading bounces in 2016. USD appears to have peaked with the latest round of central bank stimulus coming to an end and several US interest rate increases already priced into the Dollar. This could take some of the pressure off of commodities. Signs of recovery have emerged in Europe and with the US economy humming along, the demand outlook for metals and lumber could improve, particularly if China is able to stabilize and boost its economy.
El Niño has the potential to wreak havoc on commodity trading once again. The warm winter so far in the Eastern half of north America has depressed demand for Natural Gas and Heating Oil creating major oversupply conditions. Agricultural commodities could also be impacted by changing weather patterns. Historically, El Niño has been positive for cotton and orange juice (who have once again been among the top performers this El niño year) and a headwind for grains (although wheat and soybean have been known to recover later on, perhaps in the summer.
Crude Oil appears to be stabilizing near its 2008 low and could rebound to start the year, but it could have difficulty getting very far as long as suppliers continue to battle over market share refusing to blink and cut production. We still don’t seem to have found the level that would cause producers enough pain to change course, so we could still see weakness in the first half at least. The June 2016 OPEC meeting could give a better idea on how long this may drag on.
Platinum, palladium and silver sometimes trade like precious metals and sometimes like industrial metals. In 2016, these metals could see a double boost. An easing USD could boost gold and these metals could tag along for the ride. Meanwhile, strong US auto demand and growing economies elsewhere could help support commodity demand for platinum and palladium in particular.
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