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Commodity Bulletin — Support from China and OPEC

OPEC changes strategy
Not since the intense financial crisis of 2008 has OPEC agreed to reduce the production of crude oil. The decision at the extra meeting in Algiers in September to move from two years of deliberately low prices to an attempt to cut production came as a total surprise. Given the change in Saudi Arabia's rhetoric prior to the meeting, it was clear that something was going to happen. The country has come under increasing pressure after two years of budget deficits. The power struggle ended with Iran gaining the upper hand and Saudi Arabia finally deciding to make a U-turn. Now there is a great deal to prove. In the past, implementation has always been more difficult than decisions for OPEC, but we believe that the discussions will be enough to provide oil with support of around USD 10. We raise our year-end price expectation from USD 40 to USD 50.

China's "mini-cycle" becoming a "medium cycle"

As a group, base metal prices have now gained for three successive quarters. That has not happened since the re-covery after the financial crisis in late 2010/early 2011. China's recovery this year stems from stimuli targeting the property market and infrastructure, a tried and tested method that consumes a substantial amount of industrial metals. We previously believed that the cycle would start to slow in the middle of H2, but incoming data is still quite strong, so we expect base metal prices to continue rising.

Will the Fed make its move in December?

The most recent wave of bank-related turmoil in Europe, centred on Deutsche Bank, has not awakened investors' needs for a safe haven in gold in the same way as previ-ously. Following a sharp climb after the Brexit referendum, gold has come under a certain amount of pressure. We believe that market expectations of a Fed hike in December are creating a temporary aversion to gold. After a hike, we see new opportunities for gold and silver, but the current situation for this year is weaker, as only one rate hike has been signalled for 2017.

Martin Jansson, Strategist |

Råvaruplanket — Med stöd från Kina och OPEC

OPEC byter strategi
Inte sedan brinnande finanskris 2008 har OPEC enats om att sänka produktionen av råolja. Överraskningen efter beslutet att byta två års medvetet låga priser till ett försöka att minska produktionen vid det extra mötet i Alger i slutet av september var total. Något höll på att hända givet Saudiarabiens förändrade retorik inför mötet. Landet har hamnat allt mer i kläm efter två års budgetunderskott. Maktkampen med Iran har spelat ut i Irans favör och Saudiarabien valde till slut att göra en kovändning. Nu ska mycket bevisas, historiskt har alltid implementering varit svårare än beslut för OPEC, men vi tror diskussionerna räcker för att ge oljan stöd med omkring USD 10 och höjer vår tro från USD 40 till USD 50 vid slutet av året.

Kinas "minicykel" börjar bli en "mediumcykel"

Basmetallerna som grupp har nu stigit tre kvartal på raken. Det har inte hänt sedan återhämtningen efter finanskrisen i slutet av 2010 till början av 2011. Kinas återhämtning det här året kommer från riktade stimulanser mot fastighetsmarknaden och infrastruktur under 2015. En gammal väl beprövad metod som konsumerar mycket industriella metaller. Vi trodde tidigare att cykeln skulle börja mattas i slutet av året men data fortsätter komma in på bra nivåer och vi tror därför på fortsatt stigande priser för basmetaller.

Slår Fed till i december?

Senaste vågen av bankrelaterad finansiell tumult i Europa med Deutsche Bank i centrum har inte väckt investerares behov av säker hamn i guld på samma sätt som tidigare. Sedan ett kraftigt kliv upp efter Brexit-valet har guld hamnat under svag press. Vi tror att marknadens förväntningar om en höjning från Fed i december skapar en tillfällig ovilja till guld. Efter en höjning ser vi nya möjligheter för guld och silver men utgångsläget är sämre i år då endast en räntehöjning är annonserad för 2017.

Martin Jansson, Strategist |

What are the Philippines up to? — Unlocking the Philippine mine closures

- Export ban unlikely to be encouraged
- Large mine operations will not be suspended
- Nickel market set to reach two consecutive years of supply deficit

Martin Jansson, Strategist |

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 |

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 |

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 |