Market Strategy - Global Commodities Strategy - Monthly Roundup - JULY 2017

The outlook for commodity prices over the rest of 2017 remains neutral. We are positive on grains and oil from spot levels, neutral to slightly bearish on industrial metals and negative on softs agricultural commodities and coal. The outlook for commodities is more positive looking into 2018 for some commodities that we expect to grind higher, including agricultural commodities, non-ferrous metals and gold (see chart below).

In terms of relative performance, we continue to believe oil and grain prices will be the strongest performing commodities over the remainder of 2017. Oil prices have eased significantly over recent weeks and downside risks to Brent have risen, but we remain fundamentally bullish for H217 and believe softening supply additions from Libya and the US, strong compliance with the OPEC cut deal and a seasonal rise in demand will pull prices higher over the coming months. We are less constructive on 2018 and will be revisiting our forecast in the coming days.

Our positive view on CBOT grain prices is starting to play out as wheat and corn prices are showing signs of revival amidst concerns over weather conditions in parts of the Northern Hemisphere, while rice prices have been one of the best performing commodities so far this year. We generally hold below official production forecasts and above consensus price forecasts as measured by Bloomberg for grains and expect them to head higher in the coming quarters. With speculative length significantly bearish, it would not take much improvement in underlying supply and demand fundamentals to catalyse a far more substantial upside move. Meanwhile, soft prices will prove weak over the rest of 2017 but hold significant upside potential on a more medium term horizon, with cocoa and cotton showcasing the most bullish profiles from a fundamental perspective.

More Positive Outlook For Commodities In 2018 Compared With 2017
Commodities - BMI 2018 Price Forecasts vs Spot Prices (% difference)
2018 = BMI forecasts. Source: Bloomberg, BMI

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