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Commodities

Commodity Strategy Comment — Gold was silver in Rio

The commodities market has emerged from the summer lull with an unusually high focus on precious metals, thanks to the Rio Olympics. The "500-gram gold medals" are in fact 462.5 grams of silver and only plated by 6.7 grams of solid gold. The remaining 30.8 grams are copper, the least exciting metal market for now. The last leg of the precious metal rally this year was spurred by Brexit, but only temporarily. In this "back to school" note, we outline this autumn's highlights in the commodities market.

Martin Jansson, Strategist | nija03@handelsbanken.se

Strategikommentar till råvarumarknaden — Råvaror efter sommaren

Under sommaren har intresset för råvaror mest handlat om guld och silver i Rio de Janeiro. Det har dock inte hindrat råvarumarknaden från att röra på sig. Oljan har återhämtat sig till nära USD 50 och zink och nickel fortsätter springa ifrån övriga basmetaller. I veckans första brev efter sommaruppehållet sammanfattar vi läget för råvarorna och de teman vi tror man ska fokusera på under hösten.

Martin Jansson, Strategist | nija03@handelsbanken.se

Commodity Bulletin — Political games to decide commodity prices in second half of the year

Supply disruptions balance the oil market
The oil price has risen substantially since March, when we believed that its next movement would be down. Increased activity in the shale oil fields, which we expected then, is beginning to show now, nearly three months later. This shows what pressure shale oil producers have been under. At the same time, supply disruptions have rapidly improved the market balance. As far as the second half of the year is concerned, it will be particularly difficult to assess how Nigeria's and Venezuela's complex production will develop. We still think prices will drop somewhat, but not as much as in March, and we see a clearly increased upside risk in our price assumption, with Brent at around USD 40/bbl by year-end.

Base metal prices diverge
Of our key cases this year, zinc prices have taken off, rising by 30% year-to-date. However, nickel has remained still, even though the market balance looks increasingly strained. After the zinc increase, we see nickel as the main commodity with a chance of a 15% price increase by year-end, with USD 10,600/t as our target price. We keep our year-end forecast for zinc at USD 2,200/t and lower our copper forecast from USD 5,000/t to USD 4,500/t, as mining companies continue to increase production and China is not meeting growing demand.

Fed indecisive and Brexit looms
Fed Chairwoman Janet Yellen recently stuck to her earlier statement of two rate increases this year. The strong correlation of gold and precious metal prices to whether the Fed raises rates creates a downside risk for precious metals, as two increases have not been priced into the market. On the other side of the scale is this week's outcome of the UK referendum. We believe that a clear "leave the EU" outcome, say 60-40, will spark a new sustainable increase in the gold price, where the upcoming elections in Spain, Belgium and the Netherlands may stimulate an increased interest in gold as a safe haven.

Martin Jansson, Strategist | nija03@handelsbanken.se

Råvaruplanket — Politiska spel avgör råvarornas andra halvår

Utbudsstörningar balanserar oljemarknaden
Sedan mars då vi trodde att nästa rörelse för oljan skulle bli ner har oljan stigit kraftigt. Ökad aktivitet i skifferfälten som vi väntade oss då, har börjat synas nu istället, nästan tre månader senare. Det vittnar om hur pressade skifferproducenterna har varit. Samtidigt har utbudsstörningar snabbt förbättrat marknadsbalansen. Andra halvåret blir nu ett svårt vågspel på hur Nigeria och Venezuelas komplexa produktion utvecklar sig. Vi tror fortfarande att priserna kommer ner något, men inte så mycket som i mars och vi ser helt klart ökad risk på uppsidan i vårt prisantagande med Brent kring USD 40 i slutet av året.

Basmetallerna spretar
Av våra "key case" detta år, stigande zink och nickelpriser har zink tagit fart och stigit med 30 % så här långt. Nickel ligger dock kvar trots att marknadsbalansen ser allt mer ansträngd ut. Efter zinkuppgången håller vi nickel som främsta råvara med chans att stiga 15 % i pris till slutet av året med vårt prismål på USD 10600. Zink håller vi kvar på USD 2200 och koppar tar vi ner från USD 5000 till USD 4500 då gruvbolagen fortsätter öka produktionen och Kina inte svarar upp till ökad efterfrågan.

Fed velar och Brexit spökar
Fed:s ledare, Yellen behöll utsagan om två höjningar i år. Guld och ädelmetallers starka korrelation till huruvida Fed höjer eller ej skapar risk på nedsidan i ädelmetallerna då två höjningar inte är prissatta i marknaden. I andra vågskålen ligger veckans utkomst från omröstningen i Storbritannien. Ett tydligt "lämna EU" resultat, låt säga 60-40 tror vi är gnistan till ett ny hållbar guldprisuppgång där kommande val i Spanien, Belgien och Holland kan ge influenser som ökar intresset för guld som säker hamn. Vår prognos med guld till USD 1300 har precis infallit och vi höjer den till USD 1400 på större sannolikhet för europeiskt tumult än en aggressivt räntehöjande Fed under andra halvåret.

Martin Jansson, Strategist | nija03@handelsbanken.se

Commodity Strategy Comment — Frenetic instead of a freeze in Vienna

Today's biannual OPEC meeting was crowded, as has been the case since November 2014 when the group decided to maintain output despite falling prices. The December 2015 meeting led to the official production target being abandoned without any agreement on new output targets. Today's meeting was not about any major policy; instead, it signalled that OPEC can still work together toward a deal, if it is necessary. OPEC will stick to its policy of unfettered oil production. It was the second subsequent meeting with lack of an oil production target and oil traded lower.

Martin Jansson, Strategist | nija03@handelsbanken.se

Commodity Strategy Comment — Chess strategy in Vienna

We see low risk of a coordinated action at the June OPEC meeting on Thursday and reiterate our view that there is zero chance of an OPEC cut this year. With few event risks on the radar, we think the next big price turn will come from structural changes. The rebalancing is underway but the latest tightening comes from transient outages. Ultimately, the rebalancing depends on the ongoing contraction in US shale but the current price rebound is throwing a lifeline to most shale fields. Saudi Arabia will face two choices: earn a higher oil price and leave additional barrels to North Dakota's cowboys, or tap some of its spare capacity. Neither choice is price bullish.

Martin Jansson, Strategist | nija03@handelsbanken.se