Key themes
The UK's decision to exit the EU has not had a significant impact on global financial markets, including commodity markets, and in September the Federal Reserve decided yet again to hold off raising interest rates. In turn, it has been a relatively calm summer for commodity markets. A potential rate hike in the US is likely to be in focus on the back of the US election in November, as will the details of the proposed fiscal easing in China, which should keep the economy progressing steadily next year. Not least,the market will monitor incoming details on the implementation of the proposed output ceiling OPEC is set to agree on at the 30 November meeting in Vienna.
Oil
OPECs intention to agree on an output cut in November has given a small boost to oil prices. Towards the end of 2016 and in 2017, we expect higher global income growth, along with a further rebalancing of the oil market and a further decline in the USD, to lead to additional price increases. We recommend consumers use a temporary drop back in prices (e.g. the price on Brent falling to around USD46-48/bl) to hedge exposure in 2017.
Metals
Upstream supply has started to slip. In combination with an improvement in Chinese construction activity and a weaker USD and CNY, it should support a recovery in base metal prices. We recommend that consumers hedge exposure in aluminium, copper and nickel for the rest of 2016 and in 2017 at current low levels.
Grains
Prices remain lower on strong supply fundamentals. La Niña weather later this year may push prices higher while high stock levels limit upside risk. Consumers should hedge weather risk in 2017 in CBOT wheat, CBOT soybean and rapeseed.