Commodities Update: Minerals and Energy – December 2013

Global upturn continues with advanced economies seeing faster recovery after prolonged weakness post 2008/09 recession. Chinese and Indian economies faring better with no slowing in former and activity picking-up in the latter.

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  • Global upturn continues with advanced economies seeing faster recovery after prolonged weakness post 2008/09 recession. Chinese and Indian economies faring better with no slowing in former and activity picking-up in the latter.
  • The US Fed commenced tapering QE in December, but the immediate response by commodity markets was relatively subdued. Forward guidance appears to have helped allay fears of a more disruptive correction in markets.
  • After showing synchronised falls in October and November, movements in oil indices in December were more mixed to date. WTI has risen from its recent lows on the back of signs of rising refining demand. Meanwhile, Brent and Tapis have been on a modest downward trajectory in anticipation of a recovery in Libyan supply, but still remain above November average in the month to date.
  • Steel input markets have been mixed, with modest declines in metallurgical coal prices (on weak seasonal demand) and relatively stable trends for iron ore (boosted by a restocking phase). Thermal coal prices edged higher, on pre-winter purchases, but are well below the levels of a year ago.
  • Base metals prices declined in November, but have gained some support more recently from generally positive economic data. However, any persisting USD strength following the FOMC announcement is likely to create headwinds.
  • Market expectations regarding Fed tapering continued to be the major headwind to gold prices over the last month, driving prices lower – although they appeared to stabilise during the past week. Demand emanating from Asia (particularly China) is helping to partially offset the investor outflow.
  • Overall, our forecasts for commodity prices have been left largely unchanged. We continue to expect only a modest recovery in demand over the forecast horizon, but the recovery is expected to be bumpy, ensuring ongoing volatility in commodity markets.

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