Commodities – Five of the most popular commodities to trade

The commodity supercycle may have come to an end, but after plumbing multi-year lows there have been some signs the market is firming up. But forecasts are mixed, with the World Bank ​predicting a general trend lower this year.

“All main commodity indexes tracked by the World Bank are expected to decline in 2016 from the year before due to persistently elevated supplies, and in the case of industrial commodities – which include energy, metals, and agricultural raw materials - weak growth prospects in emerging market and developing economies,” it said in its latest Commodity Markets Outlook.

Here’s our snapshot guide to some of the most traded commodities and what to watch for over the coming weeks and months.

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Gold

 

A rally for gold in the first quarter was its best three-month run in 30 years. Spot prices touched on the key $1,300/oz level having surged 20% year-to-date. A slump in the US dollar, fuelled by waning market expectations about when US rates will rise, has also helped lift gold.

Looking ahead, all eyes are on the Federal Reserve and whether it plans to tighten sooner rather than later. Safe haven demand may materialise if markets get rocky, while negative rates in Europe and Japan are another factor. World Bank estimates suggest gold will be almost flat this year.

Copper

 

Last week, copper futures in New York slumped more than 5%, the biggest decline since the start of 2015 amid the usual worries about China. By Monday, prices were trading at their lowest level in a month, not far off a seven-year nadir.

China is the main player for copper demand and therefore prices – it consumes more of the metal than any other nation and its economic data are therefore very important for traders. Figures for April showed exports fell 2% in April, while imports were down 11%, the latest sign of a slowdown in the world’s second largest economy. PMI data also showed Chinese manufacturing contracted again in April.

Iron Ore

 

Iron ore entered bear market territory this week as prices dived on moves by Chinese authorities to contain speculators. Stockpiles at ports rose as the price retreated 12% last week and further declines pushed the commodity 22% lower since hitting a 15-month peak in April.

China’s three exchanges have taken bold steps to curtail speculation, raising transaction fees and margins. While officials are seeking to quell frenzied bidding, fundamentals are also weighing as demand cools in line with the broader slowdown in China.

Platinum

 

Platinum, used widely in industry, is trading near to 11-month highs as car sales surge and a weak dollar offers support. Still, the metal is a long way off the dizzy heights 2008, when the metal was above $2,000 an ounce.

A strong rand – which has been one of the standout performers among emerging market currencies this year – has also been an important lever for platinum as it produces around 60% of the metal. Concerns about the fragility of the South African currency could feed into platinum prices going forward.

The World Bank, in its Commodity Markets Outlook, suggests platinum will fall 10% in 2016, leading the decline among metals. By contrast, gold will only fall 1%, according to the forecasts. Overall, metals are expected to slide 8% this year on lower investment demand after falling 21% in 2015.

Crude Oil

 

Oil has recovered well after touching on its weakest level in 13 years in February. Concerns about rising production may be abating as there are signs of contraction in the US market even if OPEC has so far failed to agree a cut to output.

Market watchers continue to see oversupply in 2016 before tightening in 2017. After gaining around 50% from their February trough, Nymex crude and Brent crude have failed to carry the momentum much beyond the $45 handle.

According to the World Bank study, crude will move towards $50 barrel as the market moves back into balance. It raised its forecast to $41 a barrel from $37 a barrel predicted in January. Traders are eyeing the OPEC meeting at the start of June to potentially drive some additional activity in the market.