Commodity Update: Minerals and Energy – February 2014

Global upturn hampered by severe winter weather conditions in the northern hemisphere. Emerging markets (including China) showing signs of a slowdown, although Chinese trade and credit data have been robust.

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  • Global upturn hampered by severe winter weather conditions in the northern hemisphere. Emerging markets (including China) showing signs of a slowdown, although Chinese trade and credit data have been robust.
  • Softer economic data has cast some doubt in the market over the timing of QE tapering by the Fed, and has prompted interest rates to fall again – having some impact on commodity markets.
  • Since mid-January, a number of idiosyncratic US weather and supply factors have caused a sharp rise in West Texas Intermediate (WTI) oil prices relative to Tapis and Brent, largely expected to be temporary. The medium-term outlook of moderate growth in global demand against a North American-led boom in supplies remains largely intact.
  • Bulk commodities – thermal coal, metallurgical coal and iron ore – were softer this month, as weak seaborne demand and adequate supplies weighed on spot prices. In the short term, steel inputs should benefit from the resumption of steel production post the northern winter.
  • Prices for the base metals complex have declined since the end of last year on demand concerns, but outcomes have varied across metals. Supply side factors have helped nickel and zinc prices outperform the rest of the complex in recent months.
  • Gold prices have shifted higher, following the significant declines of last year, in response to higher safe haven demand that has stemmed the investor outflow. Signs of a faltering US economic recovery, emerging market concerns, and geopolitical risks have all been factors.
  • 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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