CITI: This Is What The World's Most Important Commodities Will Do In 2012 And 2013

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Citi’s Commodities Strategy team led by Edward Morse recently published its huge 113-page Q2 Commodity Update.The research book compiles summaries of the research and analysis of the firm’s top commodities analysts.

All forecasts are considered in the context of 3.1 per cent global GDP growth in 2012 and 3.5 per cent growth in 2013.

However, uncertainty remains high.  From the note: “Tail risks abound, whether arising from politically-induced supply disruptions in oil, from weather-related factors in bulk commodity producers like Australia, or from moisture and heat conditions impacting the agriculture sector, where improved inventories may be just short of enough. Both crude oil and grains, along with some other soft commodities provide attractive risk/reward returns in the eventuality that tail risks materialise.”

Brent crude prices will likely hit record levels in 2012 and 2013 but may fall sharply thereafter.

April 30 price:
$119.28/bbl

2012 average year price:
$124.40/bbl

2013 average year price:
$120.00/bbl

Geopolitical uncertainty in at least for major suppliers (Iran, Iraq, Venezuela and Nigeria) continues to weigh on the market, and Citi says 2013 prices could reach $130 worst-case scenario. However, producers have executed heavy lower-end hedging trades down through the rest of the decade. Still, the U.S. march to energy independence is described as 'slow.'

Source: Citi

Natural gas prices will slowly creep upward but won't get anywhere near $4.

April 30 price:
$2.3/MMBtu

2012 average year price:
$2.5/MMBtu

2013 average year price:
$3.6/MMBtu

Inventories remain at all-time highs, compounded by the mild winter, which produced a large supply-overhang and will likely lead to forced coal burns. A court decision has also put off retirements of coal plants. Any price increase in 2013 is contingent on normal winter conditions returning.

Source: Citi

Copper prices are drifting on demand uncertainty.

2012 average year price:
$8,491/ton

2013 average year price:
$8,375/ton

While copper stocks on the London Metal Exchange have fallen sharply since January, Shanghai Exchange stocks rose on demand for copper-collateralized financing in China. Citi has seen a buying-on-dips pattern for most of the year, and concludes uncertain demand will thwart any breakout. Consumption growth is expected to slow to 2.6% in 2012, largely as a result of slower H1 Chinese consumption growth. European copper consumption is expected to contract by 3.5% through 2012.

Source: Citi

aluminium prices will track upward on continued tightness in metal availability in the West.

2012 average year price:
$2,280/ton

2013 average year price:
$2,390/ton

An improving H2 demand environment, driven by continued US growth, new China stimulus and bottle-necked European inventories, combined with continued tight prompt-metal-availability, is projected to push aluminium prices back to March highs of $2,350/t by the end of the year.

Source: Citi

Nickel prices are expected to rise thanks to booming aerospace demand.

2012 average year price:
$19,430/ton

2013 average year price:
$22,820/ton

Long lead times in aerospace orders and record order books at both Boeing and Airbus will ensure continued strong superalloy demand for non-stainless nickel. Possible import curbs by Indonesia are also expected to cause prices to climb.

Source: Citi

Zinc prices will see modest improvement as China ends its self-imposed slowdown.

2012 average year price:
$2,121/ton

2013 average year price:
$2,300/ton

Zinc prices trailed only tin for best Q1 performance and have rallied 10% YTD, largely on U.S. auto sales. It is likely to lose some momentum on weak China and U.S construction sector concerns. However, as China begins to shift investment toward consumer market/service sector growth prices will regain traction.

Source: Citi

Gold prices will rise as central banks expand their balance sheets.

April 30 price:
$1,666.30/oz.

2012 average year price:
$1,720/oz.

2013 average year price:
$1,835/oz.

Citi dismisses some of the more positive marcoeconomic news as 'scattered' and says the global economy 'remains under deep pressure.' Central bank balance sheet expansion, real and threatened, will push prices up through 2013 but could come back down later in the decade.

Source: Citi

Silver prices will decline as supplies remain abundant.

April 30 price:
$31.11/oz.

2012 average year price:
$30.6/oz.

2013 average year price:
$27.1/oz.

Industrial demand is likely to grow at a subdued pace of 1.9% in 2012 as a result of global weaknesses. Citi expects a rebound in growth to 3.8% in 2013 and 4.8% in 2014. Meanwhile the market is likely to remain well supplied, with several major production sites in South America soon set to come online.

Source: Citi

Platinum will be bolstered by auto sales.

2012 average year price:
$1682/oz.

2013 average year price:
$1725/oz.

Growth will mainly be driven by light vehicle demand recovery in China and the U.S. (13% and 12% respectively).

Source: Citi

Palladium stands to see even greater gains from improving consumer confidence.

2012 average year price:
$801/oz.

2013 average year price:
$925/oz.

Investment and industrial demand will cause palladium prices to rise 15% through 2013, compared with just 2.55% for platinum.

Source: Citi

Thermal coal will depend entirely on growth in Asia.

2012 average year price:
$119/Mt

2013 average year price:
$136/Mt

If domestic shortages in India are rectified, all of Japan's damaged coal-fired capacity comes back online as expected and Chinese industrial activity picks up, the thermal coal market will tighten up considerably.

Source: Citi

Metallurgical coal prices will remain subdued on slowing steel demand.

2012 average year price:
$233/Mt

2013 average year price:
$231/Mt

Huge inventories in Asia built up over the past few years will dampen prices and slow imports. However, China could exhaust its inventory in short order and be forced to return to global markets.

Source: Citi

Iron ore remains weighed down by China's slowing economy.

2012 average year price:
$149/Mt

2013 average year price:
$138/Mt

The Chinese housing and construction sectors are still weak, and the government has showed no sign that it will lift restrictions on the sector. Similar to coke, inventories will likely be worked down before any significant pick up in imports resumes.

Source: Citi

Corn will rise on China in 2012 before easing next year.

April 30 price:
$6.34/bu

2012 average year price:
$6.40/bu

2013 average year price:
$6.00/bu

Chinese corn prices remain robust, and global use is expected to increase 3% and 1.1% in the current and subsequent cycle. However the USDA announced record plantings this year, which will weigh on 2013 prices.

Source: Citi

Wheat prices are expected to trade near parity to corn.

April 30 price:
$6.55/bu

2012 average year price:
$6.38/bu

2013 average year price:
$6.75/bu

Old crops are seeing support from fundamentals in coarse grains and oilseeds. Prices in 2013 are expected to strengthen as new production cuts and inventories draw down. Elections in Ukraine could also affect prices.

Source: Citi

Soybeans remain tight short-term but remain exposed to production changes.

April 30 price:
$15.05/bu

2012 average year price:
$13.69/bu

2013 average year price:
$13.03/bu

With South American supply weakness supporting oilseed prices relative to grains, U.S. producers have motive to increase soy plantings. China's buying may ease if it finds itself hedged to the global supply risk currently in the market.

Source: Citi

Rice prices are mostly static.

April 30 price:
$15.13/cwt

2012 average year price:
$14.90/cwt

2013 average year price:
$15.15/cwt

Global consumption could be poised to move in parity with production into 2013 based on 1.3% demand growth, though weak YTD import demand will undercut prices somewhat.

Source: Citi

Cocoa will enjoy major gains on booming demand.

April 30 price:
$2,209Mt

2012 average year price:
$2,300/Mt

2013 average year price:
$2,400/Mt

The International Cocoa organisation is forecasting consumption to outstrip demand by 71-k tons this year (although this could be seen as premature). Emerging market demand in particular will continue its structural upward trend.

Source: Citi

Cotton prices will barely budge.

April 30 price:
$9.00/lb

2012 average year price:
$9.10/lb

2013 average year price:
$9.00/lb

World production in 2011-2012 was cut 500,000 bales, but this was offset by larger retrenchment in global consumption. U.S. cotton production was cut 0.5-m bales even though exports are projected to be higher.

Source: Citi

Sugar

April 30 price:
$0.21/lb

2012 average year price:
$0.24/lb

2013 average year price:
$0.24/lb

Sugar is among the most resilient commodities when faced with weakness in global growth and market
volatility, so price action should be driven by fundamentals. Output in the key producing states in Asia and Latin America is generally strong this year.

Source: Citi

Coffee prices will continue to decline.

April 30 price:
$1.80/lb

2012 average year price:
$1.89/lb

2013 average year price:
$2.00/lb

Coffee contract shorts are at their highest level in five years. Brazilian and Vietnamese production remains stable.

Source: Citi

Without question, natural gas is the commodity on everyone's mind.

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