Commodities Quarterly: Building on strength

15 January 2018Commodities QuarterlyGlobalCommoditiesCommoditiesQuarterlyDate15 January 2018Deutsche BankMarkets ResearchBuilding on strengthOverviewHealthy medium-term fundamentals are poised to continue with PMI readingsremaining near 6-month highs across the US, Eurozone, China and other EM. Ourglobal growth forecast has been lifted from 3.7% to 3.8% for 2018. The trend ofslow supply growth and policy restriction continues, and we see further upsidefor industrial metals in particular.Crude OilThe shift into backwardation in September 2017 has proved to be prescient, onceagain marking a turning point. Prices have been strong in what is typically aweak quarter for demand. Affordability remains moderate, and demand upsideappears possible amidst a supportive macro backdrop and US dollar weakness.We raise 2018-19 Brent forecasts to USD 62/bbl in 2018-19, below spot owing toour expectations for a stronger extension of the supply rebound in the US.Precious MetalsWe expect gold will shrug off worries of fundamental downside amidst theunwind of accommodative central bank policy, and that the market premiumover fair value will widen. Our USD 1,283/oz forecast for 2018 incorporatesboth our outlook for four Fed rate hikes and modest dollar weakness. Furthersupport for gold could also derive from the possibility that strengthening inflationexpectations are a prerequisite for the tightening policy trajectory.Industrial MetalsIndustrial metals are our most favored sector across the commodity spectrum.Supply-side reform, disruption, or slow supply growth and robust industrialactivity are combining to establish market deficits broadly across Copper, Nickel,Zinc and Aluminium, fueling material upgrades to our price decks over themedium term. We see larger deficits in copper which could be exacerbated byfurther labour strikes, cuts of illegal Chinese aluminium capacity, and strongdemand for Nickel from stainless steel and battery production.Bulk CommoditiesWe expect steel and iron ore to retrace from current levels as Chinese steelproduction returns to normal from March, and additional seaborne iron ore supplyenters the market from the majors. Our estimate of the market surplus has risento 65Mt with supply rising by a further 2% in 2018 to 1,515Mt. In thermal coal, wesee a balanced market and expect China will eventually raise domestic productionto control power prices, lowering seaborne prices towards USD 90/t.Michael HsuehResearch Analyst+44-20-754-78015Patrick JonesResearch Analyst+44-20-754-53400Paul YoungResearch Analyst+61-2-8258-2587Janeman LatulPT Deutsche Verdhana Sekuritas IndonesiaResearch Analyst+62-21-2964 4569Liam FitzpatrickResearch Analyst+44-207-541-3233Patrick Mann, CFAResearch Analyst+27-11-775-7282Deutsche Bank AG/LondonDISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.Distributed on: 15/01/2018 04:33:11 GMT7T2se3r0Ot6kwoPaDistributed on: 15/01/2018 06:29:00 GMT7T2se3r0Ot6kwoPa 15 January 2018Commodities QuarterlyTable Of ContentsCommodity Performers.......................................................................................3#1 Executive Summary.......................................................................................4Deutsche Bank Commodity price forecasts.......................................................6#2 Commodity Indices....................................................................................... 8#3: Crude Oil.................................................................................................... 10#4: US Natural Gas.......................................................................................... 21#5 Thermal Coal............................................................................................... 26#6 Precious Metals:..........................................................................................30#7 Platinum Group Metals............................................................................... 34#8 Industrial Metals: Favoring Nickel and Copper...........................................43Copper: risk of near-term weakness, but medium-term deficits stil................ 43Nickel: Upswing Mood.....................................................................................45Aluminium: raising price estimates, watch for further supply cuts..................47Zinc outlook: potential price peak in 2018.......................................................49Can supply fill the gap?................................................................................... 50China monthly trends.......................................................................................52Tin Outlook: Arithmetic Anomaly.....................................................................53#9 Iron Ore: Seaborne market moving to small surplus in 2018......................54Steel production and demand.........................................................