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Commodities

Commodities: Outlook for 2Q Appears Bright

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Commodities started off 2019 on the right foot with the best quarter since 2Q’16 and Citi analysts expect 2Q’19 to be another strong quarter.

 

Oil: With much less supply resulting from tight OPEC+ cuts through 1H as well as reduced output from Venezuela, Canada and potentially Libya, Citi’s price outlook has been raised to an average US$72 Brent for the year, the same as in 2018, peaking at a US$76 Brent average in 3Q. Citi analysts expect oil’s stellar performance year-to-date to continue through much of the year.

 

 

Gold: Citi’s gold price forecast for 2019 and 2020 stand at US$1,335/oz and US$1,375/oz, respectively. This could rise further in the medium-term as strong US$ headwinds dissipate, current equity market valuations appear rich to gold, official sector purchases continue growing from a diverse range of central banks and perhaps most importantly, Fed monetary outlook possibly becomes more accommodative.

 

Base Metals: After a weak 2H18, metals prices have rebounded sharply during 1Q19 on a material easing in Chinese fiscal and monetary policy and a subsequent recovery in Chinese activity and sentiment, as well as progress towards a US-China trade deal. Citi analysts see continued strength in China and supply tightening driving copper to US$7,000/t and aluminium to US$2,000/t over the coming quarter.

 

Bulks: Citi’s base case forecasts volatile price moves in the bulk commodity complex - higher prices for iron ore and hard coking coal in the near term but lower prices in the more longer term due to the unavoidable weakening of Chinese fixed-asset investment and lower steel and power demand. In the short term, Brazilian iron ore exports could drop in 2019, resulting in a major surge in iron ore prices with more upside to come over the next 1-3 months.

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