Key themes
The election of Donald Trump as the next US president and the decision of OPEC and Russia to cut output have led to a sharp rally in base metal and oil prices the past month. The market is buying the notion that Trump will push forward with a significant spending increase on public infrastructure and defence and that OPEC and Russia will comply with the deal to cut output back to January levels. If the market has second thoughts on these two factors it may lead to temporary price drops in the near term. Irrespective of these decisions we are looking for higher global economic growth next year and a lower USD in 12M, which are two factors that are more important for commodity markets as they support underlying private demand for commodities. It is set to lead to a further upward trend in commodity prices in 2017 and 2018.
Oil
OPEC and Russia's decision to cut output has lifted oil prices. Doubts may hit the market once focus turns to implementation. In 2017 and 2018, we expect higher global growth, a further rebalancing of the oil market and a decline in the USD to lead to additional price increases. We recommend consumers to use a potential temporary drop in prices (e.g. the price on Brent falling to around USD50/bl) to hedge exposure in 2017 and 2018.
Metals
Trumpflation supports prices in the world base metal market in addition to the uplifting effects from higher global manufacturing activity and declining upstream supply. We recommend that consumers hedge exposure in aluminium and copper in 2017 and 2018 at current levels.
Grains
Prices remain lower on strong supply fundamentals. La Nina weather later this year may push soybean prices higher, while high stock levels limit upside risk. Consumers should hedge weather risk in 2017 and 2018 in CBOT wheat, CBOT soybean and rapeseed.
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