SEB Commodities

SEB Commodities
Price forecast
22 SEPTEMBER 2015

Commodities Monthly
SEB Commodities price outlook
Sources: Bloomberg, SEB Commodity Research
Last Closing Q4-15 Q1-16 2016 2017 12mth return fcst
Brent crude USD/b 46.8 50 50 55 60 1%
Nordic power EUR/MWh 23.6 26 28 25 24 2%
Aluminium USD/t 1,590.0 1,600 1,700 1,750 1,800 4%
Copper USD/t 5,124.5 4,900 4,900 5,500 5,900 5%
Nickel USD/t 9,770.0 9,850 10,000 12,500 13,000 26%
Zinc USD/t 1,631.5 1,690 1,710 2,100 2,200 24%
Iron ore USD/t 56.6 53 52 50 50 13%
Gold (COMEX, $/ozt) 1,134.8 1,100 1,050 1,000 900 -12%
Platinum (ICE, Brent, $/b) 960.9 980 980 980 1,000 2%
Palladium (LME, $/t) 605.4 625 625 650 700 7%
SEBCAGRI 152.2 145 155 160 165 5%
Brent crude: The global oil market is in solid surplus in 2015 and surplus production looks set to continue also in 2016.
Stocks were rising in 2014, have risen strongly in 2015 and will rise yet further in 2016. The oil market is rebalancing with
stronger demand on the one side and declining US crude oil production since April on the other side. More rebalancing is
however needed to bring it into balance. Rather than cutting production OPEC has increased production strongly in 2015.
Iran will in addition increase production in 2016 when sanctions are lifted. Key for the oil market will be the speed of decline
for US crude oil production as well as ongoing cap-ex cuts hitting production further down the line. Watching for possible
change in OPEC strategy will also be key. We expect the oil market to balance in 2H16. Until then global stocks will continue
to rise. Once the market finally moves into deficit it will be able to draw on plentiful oil stocks. The US shale oil industry has
made large cuts to activity in the downturn. It is uncertain how quickly it can ramp up activity as thousands of people have
lost their jobs while access to capital also has dried up. Huge cap-ex cuts across the global oil supply chain from exploration
to production may lay the ground for a classic oil price boom towards 2018. It is however not our main scenario as we
instead expect the oil price to move gradually towards 60 USD/barrel in 2017 as the oil market starts to move into balance
but with huge stocks to draw from. If the current rising concerns for a deteriorating economic growth for China in general
and emerging markets in general actually start to materialize then the oil market is set to experience some tremendous
challenging times ahead.
Nordic Power: The winter is approaching, but with a moderate hydrological surplus, oil products at low price levels and an
almost flat ARA coal forecast for the coming year, it is hard to see any wild changes in price, except for the seasonal
variation. However, in all fairness, short term, we believe there is no significant downside potential left after the recent
downturn. Long term, the picture is blurred as there will be further subsidized green power coming to the market.
Aluminium: Aluminium stocks continue to fall – albeit still seen at high absolute levels – as do physical premiums. The
recent financial turmoil on the back of worries over a slowing Chinese market sent the aluminium price (3 mth) down to
levels last seen in May 2009 and China is still adding smelting capacity. At the same time, the ex-China capacity idling/shut
down is not going fast enough. Hence, the world is still in oversupply. However, the recent significant rebound in the
commodities market in general is also seen in the base metal sector. The price move has been to quite a large extent fuelled
by short covering. The question is whether there is any further short covering potential left. Altogether, the risk short to
medium term is on the downside. Long term, we expect the price to increase as it currently is well into the marginal cost
curve, but this is not likely in 2016. The market will continue to be volatile going forward but will likely fluctuate around 1600
USD/t.
Copper: There is a clear bearish tone in the copper market, as the downturn in copper prices has been going on for years.
Also, sentiment has turned increasingly bearish as worries over Chinese demand have increased. However, the rolling 3mth
forward price has been sent significantly higher on the back of the general rebound in base metals lately. The forward curve
is in backwardation, and has been so for quite some time, although somewhat increased LME stocks are reflected in a
significantly flatter curve and market participants are likely seeking a more clear direction of the price. Lately, large cutbacks
in production have been announced, which in turn have lifted the market. We believe volatility will increase, but the
price will converge to and fluctuate around 5,500 USD/ton during 2016.
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Commodities Monthly
Nickel: As with aluminium, stocks are seen at elevated levels but are at best trending sideways. The Chinese demand is
increasing, global mining production is lower and the price is deep into the marginal cost curve with as much as 60% of
global production currently losing money. A lower production might hence be seen quite soon. On the other hand, the
currencies of several important producing countries have depreciated significantly over a longer period of time; likely
keeping production profitable for several producers. Fundamentals look decent, but short positions are relatively high. Short
covering rallies have been seen also in nickel, although not as strong as for aluminium. We believe the nickel price to be
volatile until stocks are lowered, we see larger cut-backs in production and the market has consolidated and found a
direction. A move north wise is however expected to 12,500 USD/ton in 2016.
Zinc: LME zinc stocks are still on a falling path, although we have seen a significant uptick lately. Over the past year, the
forward curve has shifted from backwardation in the short end to contango and further downwards although the curve is
really flat. Short contracts have increased in absolute numbers as well as percentage of total contracts, which indeed
increases the risk of recoil upwards for the zinc price as the oversold market might induce short positions to start taking
profit. Hence, we believe that there will be a volatile market going forward. We believe the price will converge to its previous
path and be seen around 2,100 USD/ton in 2016.
Iron ore: The iron ore price has followed a downwards trend for several years, although it accelerated during 2014. The
world is in overproduction and there seem to be no cutbacks in production so far, significant enough to really move the
price higher, even if a fairly large fraction of the Chinese iron ore production reportedly is unprofitable. Larger producers
also signal going for a volume-over-price strategy. Furthermore, Chinese per capita iron ore consumption is in fact at US
levels and usage of other metals, such as aluminium, are more likely to gain ground. Altogether we believe the iron ore price
to move sideways throughout 2016.
Gold: The gold price has for a longer period of time been deemed to be slave under US Fed expectations. During the first
half of the year the metal gained from the Greek woes, but did never accelerate significantly. As the market implied
probability of a FED September rate hike and the US dollar index have varied with the news flow, the gold forward curve has
been flat indeed. However, market sentiment has recently shifted to the positive side following the Fed rate decision and
the forward curve has shifted upwards. It is important to keep in mind that gold has resisted the general downturn in
commodities from 2011 when the significant Chinese economic support packages ended. Fundamentally, medium to long
term, we see no reason that gold should be an exception and we will most likely see a lower gold price. Short term however,
we believe there will be some volatility but the price will likely fluctuate around the 1 000 USD/troy ounce level. Should
future US data come in weaker than expected, lowering the probability of a rate hike, gold will most likely strengthen short
term, although we expect lower prices long term.
Platinum: Over the past year, platinum has performed significantly worse than gold. Over this period, the metal has fallen
some 30%, whereas the US dollar index has strengthened some 30%. However, the price seems to be in a consolidation
phase. Worries over Chinese demand are also here the key factor. Likely, the price of platinum will grind slightly lower on the
back of the recent financial turmoil and strengthening US dollar outlook.
Palladium: Palladium has trended significantly lower and is among the worst performers among commodities over the past
year as the price is down some 30% over the period and just recently was down some 40%. Also here, worries over a
slowing industrial production are the key factor. The discount to gold is now some 520 USD/t and has recently been just
short of 600 USD/t; the second largest difference since the start of 2014. The outlook for palladium looks rather modest and
is dependent on the world industrial outlook, which makes it volatile and rather hard to predict.
Agri: The agricultural index has trended downwards for a rather long period of time, except for a recoil during the summer
largely related to the rallying wheat price. However, this is to a large extent on the back of the general price decline in the
commodities markets. Worries over the effects of el Niño is so far not reflected in for example the coffee price. Hence, we
believe that agricultural prices in general will trend higher over the coming months.
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Commodities Monthly
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4

Contact list
COMMODITIES Position E-mail Phone
RESEARCH
Bjarne Schieldrop Chief Analyst bjarne.schieldrop@seb.no +47 22 82 72 53
SALES/RESEARCH SWEDEN
Johan A. Lindgren Commodity Expert johan.alexis.lindgren@seb.se +46 506 231 64
SALES SWEDEN
Maximilian Brodin Head of Commodities Sales maximilian.brodin@seb.se +46 8 506 233 54
Karin Almgren Commodities Sales karin.almgren@seb.se +46 506 230 51
Kicki Casalini Grass Commodities Sales kicki.casalini-grass@seb.se +46 8 506 234 62
Lars Horngård Market Sales lars.horngard@seb.se +46 4 066 769 70
SALES NORWAY
Peter Løvaas Head of Markets peter.lovaas@seb.no +47 22 82 72 70
Kristoffer Erichsen FX&Commodities Sales kristoffer.erichsen@seb.no +47 22 82 72 68
Alexandre Cieza Corporate Sales alexandre.cieza@seb.no +47 22 82 72 68
Trond Solstad Corporate Sales Trond.Solstad@seb.no +47 22 82 72 84
Aleksander Christensen Corporate Sales aleksander.christensen@seb.no +47 22 82 72 42
Mads Hultgreen Macro Sales mads.hultgreen@seb.no +47 22 82 72 34
Thomas Olsen Macro Sales Thomas.Olsen@seb.no +47 22 82 72 55
Øivind Ofstad Macro Sales Oivind.Ofstad@seb.no +47 22 82 72 06
Jenny Nordby Macro Sales jenny.nordby@seb.no +47 22 82 72 83
SALES FINLAND
Jussi Lepistö Head of FX&Commodities jussi.lepisto@seb.fi +358 9 616 285 21
Mika Redsven FX&Commodities Sales Mika.redsven@seb.fi +358 9 616 285 04
Nina Hellemaa FX&Commodities Sales nina.hellemaa@seb.fi +358 9 616 28522
SALES DENMARK
Bo M. Andersen Head of Markets bo.andersen@SEB.dk +45 33 177 70
Tom Bonavent Head of FX&Commodities tom.bonavent@seb.se +45 33 1 777 59
Martin Andersen FX&Commodities Sales martin.andersen@seb.dk +45 331 777 57
Henrik Tolmark FX&Commodities Sales Henrik.Tolmark@seb.dk +45 331 777 51
SALES GERMANY
Taner Türker Head of FX&Commodities taner.tuerker@seb.se +49 699 727 11 75
Pär Melander Senior Commodities Sales par.melander@seb.se +46 8 506 234 75
Maxim Andreev FX&Commodities Sales maxim.andreev@seb.se +49 699 727 77 20
Carlos Vazquez FX&Commodities Sales carlos.vazquez@seb.de +49 699 272 11 70
SALES POLAND
Pawel Kowalewski Head of Markets pawel.kowalewski@seb.se +48 223 958 181
SALES BALTICS
Fredrik Sundvall Head of Markets Latvia fredrik.sundvall@seb.lv +371 67 77 97 03
Venjamin Puzõrjov Sales, Estonia veniamin.puzorjov@seb.ee +372 66 577 93
Irmantas Pociūnas Sales Lithuania Irmantas.Pociunas@seb.lt +370 52 68 23 66
SALES SINGAPORE
Pablo Riddell Head of FX Sales pablo.riddell@seb.se +65 65 05 05 05
SALES HONG KONG
Chloe Merdjanian Head of FX chloe.merdjanian@seb.se +85 231 59 26 20
www.seb.se

SEB Commodity Research
Bjarne Schieldrop, Chief Commodity Analyst
bjarne.schieldrop@seb.no
+47 9248 9230
www.seb.se