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COMMODITIES WEEKLY SUMMARY - 24 October 2014 / N°28

Core Content Overview

This report provides an outlook on global commodities markets, focusing on oil, precious metals, and base metals. It highlights key developments, price forecasts, and market dynamics for the remainder of 2014 and into 2015.

Oil Price Outlook

Main Points:

• Oil prices have been under pressure due to weak fundamentals and a lack of geopolitical risks.
• Seasonal support is expected for the remainder of 2014, with quota cuts and geopolitical risks providing further support in 2015.
• Brent crude is forecast to average $93/bbl in 2014Q4 and $99.3/bbl in 2015.
• WTI crude is expected to average $93.5/bbl in 2015, with higher volatility anticipated due to US production growth and export constraints.
• OPEC is expected to pressure Saudi Arabia to lead quota cuts to address the potential oversupply.
• Saudi Arabia has a passive stance on oil price reduction and may be prodding other OPEC members to cut production.
• Global oil demand was revised down by 200k b/d by the IEA for 2014, with refinery activity and colder winter weather expected to support demand in Q4.
• US oil companies are hedged or have lower break-even prices, making them less vulnerable to price declines.
• Non-OPEC production is a key factor in the potential oversupply, prompting the need for OPEC cuts.

Precious Metals

Key Developments:

• Gold prices were supported by Diwali festival demand in India, despite a stronger dollar.
• Buenaventura scaled back its Chucapac gold project from $2bn to $700mn, leading to a reduction in annual gold output.
• Hochschild Mining delayed an interim dividend due to high CAPEX at its gold-silver project.
• CAPEX cuts across gold producers are expected to reduce mine output in the long term.
• Gold holdings in physically-backed ETPs dropped by 6.5 tonnes this week, with a negative annualised trend.
• Silver holdings in ETPs declined by 36 tonnes, showing a negative trend in physical accumulation.
• Platinum holdings remained unchanged, while palladium saw a minor increase.
• Automobile sales in BRIC and G3 countries rose by 4% yoy to 5.18mn units, with G3 showing stronger growth (6.5%) than BRIC (1.3%).
• Chinese and European car sales showed positive growth, while Japanese sales were slowed by consumption tax.
• Norilsk Nickel may invest $200mn in palladium purchases to ensure supply.

Base Metals

Copper:

• BHP's copper output fell by 3.4% yoy in Q3 due to lower ore grades and operational disruptions.
• Antamina shifted to higher zinc grades, leading to increased zinc output.
• Bolden also saw a 22% rise in zinc and 20% drop in copper output.
• Copper surplus is expected in 2015, though some mine shifts may reduce the severity of the surplus.
• Cochilco raised its 2015 copper output forecast to 6.23mn tonnes.
• MMG's copper output fell by 5.5% yoy due to lower production at Sepon and Golden Grove.

Zinc:

• BHP zinc output increased by 42% yoy in Q3 due to higher grades and improved mill throughput.
• Bolden and Garpenberg are also increasing zinc production.
• MMG's zinc output dropped by 8.8% yoy due to decline at Century mine.
• Zinc demand is expected to be insufficient to offset supply, leading to a potential deficit in 2015.
• Poly-metallic mine shifts may help reduce short-term imbalances, but not resolve the long-term deficit.

Aluminium:

• Chinese exports of aluminium products hit a record high at 342,000 tonnes in September.
• Japanese economic data showed improvement, with higher exports and manufacturing PMI.
• BHP's aluminium output fell by 16% yoy due to cessation of activity at Bayside.
• Aluminium stockpiles showed negative accumulation, with declines in both weekly and monthly figures.
• Aluminium demand is expected to rise in the medium term, with fiscal and industrial demand playing a key role.

Nickel:

• Nickel prices fell to below $15,000/tonne, the lowest since March.
• BHP nickel output declined by 12% yoy due to mine closures.
• Vale saw a 16% increase in nickel output as Sudbury operations returned to normal.
• Anglo American increased output by 12.6% yoy due to improved operational stability.
• Cumulative LME stockpiles are rising, which is undermining bullish sentiment.
• Nickel surplus is expected, with OPEC and non-OPEC supply outpacing demand.

Lead:

• Chinese lead imports increased to over 200,000 tonnes, suggesting a potential rise in demand.
• BHP lead output rose by 6.7% yoy due to higher mill throughput.
• MMG's lead output fell by 38% yoy due to decline at Century mine.
• Lead stockpiles showed negative accumulation, with weekly and monthly declines.

Key Takeaways

• Oil prices are expected to recover slightly in 2015 due to OPEC quota cuts and geopolitical risks, though WTI faces greater downside risks due to US production growth.
• Gold is under pressure from the strong dollar, but demand from festivals and CAPEX reductions may help stabilise prices.
• Copper is expected to face a surplus in 2015, but mine shifts and investment delays may mitigate the impact.
• Zinc is likely to face a shortfall, but increased production from poly-metallic mines may help reduce the deficit.
• Aluminium demand is rising, with China and Japan showing positive growth in exports and production.
• Nickel and lead markets are concerned about supply outpacing demand, leading to price declines and stockpile increases.

Key Data Highlights

Conclusion

The report outlines a mixed outlook for commodities in the short and medium term, with oil and base metals facing supply and demand imbalances, while precious metals are influenced by geopolitical factors and currency movements. OPEC is expected to take action in 2015 to stabilise prices, and mine shifts may play a key role in adjusting supply for copper and zinc. Gold and silver are under pressure due to the strong dollar, but demand factors may offset some of the decline.