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Commodities – A Generally Robust Outlook for 2021

  • Oil: Oil is geopolitically tenuous, largely because of the large spare capacity in the system and political disputes at the core of the OPEC+ producer group. Even if discipline is maintained into 2021, disagreements between UAE and Saudi Arabia over production policy, which have simmered since mid-2020, may re-ignite at any time. The last time the producers were in disagreement over production policy in March 2020, prices fell by 25% pretty quickly and that danger looms large for 2021. The effectiveness of vaccines are encouraging for the prospects for oil demand recovery in 2H 2021, but before then, the winter upsurge in COVID-19 cases could mean near-term demand risks. Citi analysts expect oil could still be on a gradual upward trend as financial positioning normalizes while OPEC+ manages supply month-to-month with an eye on prices. Brent and WTI crude oil prices are expected to average US$59/bbl and US$56/bbl respectively in 2021. 


  • Gold: Citi analysts look for gold prices to head toward US$2,100/oz over 6-9 months, before moderating into 2022. An accommodative Federal Reserve amid positive vaccine developments, a weaker USD and consumption rebound in Emerging Markets could set the stage for a rally in bullion prices in 1H 2021. So long as the FOMC policy is successful in suppressing real yields at the short-end, gold prices could head higher in real and nominal terms. A credible vaccine distribution in 2H 2021 may then see a moderating of prices and quantitative easing.





  • Bulks and metals: Citi analysts are positive on LME aluminium prices between now and Chinese New year in mid-February. A constructive global macro backdrop, “cheap” prices as a percentage of copper and delayed start-up on new Chinese smelters are positives and prices may average US$2,050/MT in 2021. Newcastle thermal coal prices could also benefit from rising thermal coal demand from Southeast Asia, Japan, Korea and a potential end to Chinese import ban on Australian coal. Citi analysts expect Newcastle thermal coal and hard coking coal prices to average US$65/MT and US$130/MT respectively in 2021. 

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