Itaú BBA - Higher copper prices, lower agricultural prices

Commodities Monthly Report

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Higher copper prices, lower agricultural prices

November 6, 2017

We increased our yearend copper and nickel forecasts. On the other hand, we lowered our forecasts for agricultural prices.

For the full report, see enclosed file
 

• Commodity prices rose in October, boosted by 4.4% increase in its energy subcomponent.

• We increased our yearend copper and nickel forecasts. On the other hand, we lowered our forecasts for agricultural prices.

• We expect a 5.3% drop in the ICI from its current level by year-end, led by metal and energy prices.

The Itaú Commodity Index (ICI) has increased by 1.4% since late September, boosted by its energy subcomponent. Metal and agricultural prices remained broadly stable in the period.

Higher copper and nickel prices forecasts. Copper and nickel prices rose by 5.9% and 11.2%, respectively, in October. This rally is explained by the promising in demand growth due to electric vehicles. However, this movement was offset by a 6.0% drop in iron ore prices.  For copper prices, we raised our yearend forecast to USD 6500/mt (USD 5900/mt, previously) and to USD 11,000/ton (USD 10,200/ton, previously) for nickel prices .  We maintain our yearend forecast for iron ore at USD 60/mt. Nonetheless, we still forecast a 3.1% decline in the ICI Metals as the Chinese economy continues to decelerate in 4Q17.  

Fine-tuning our Brent and WTI yearend forecasts. Oil prices continued to rally in October, boosted by geopolitical risks. We still estimate that the WTI range of $45-50/bbl can stabilize the US rig count and helps to balance the market in 2018. Due to the recent recovery in oil prices, we slightly rose our yearend WTI price forecasts to USD 50/barrel (from USD 47/bbl) and our yearend Brent forecast to USD 53/bbl (from USD 49/bbl). For 2018, we maintain our forecasts at USD 45/bbl for WTI and at USD 47/bbl for Brent.

Agricultural prices remained broadly stable in October, as the drops in corn (-2.7%) and in wheat (-6.6%) prices were offset by increases in other agricultural commodities. We therefore slightly lowered our price forecasts for corn (to USD 3.6/bushel from USD 3.85/bushel) and wheat (to USD 4.4/bushel from USD 4.6/bushel), incorporating the recent decreases. We also adjusted our yearend forecast coffee (to USD1.23/lb from USD 1.35/lb) prices.

We expect the ICI to drop 5.3% from its current level by year-end, due to lower metal and energy prices.

Metals: Higher copper and nickel prices

Metals prices remained broadly stable in October. Copper prices rose to USD 6,867/ton from USD 6,481/ton and nickel prices reached USD 11,675/ton coming from USD 10,500/ton in the end of September. This rally is explained by the promising in demand growth due to electric vehicles. On the other hand, iron ore prices fell by 6.0% to USD 58.70/ton. All in all, our metals index is up by 3.3% year to date.

We increased our forecasts for metal prices in 2017. We maintain our yearend iron ore prices forecast at USD 60/mt. For copper prices, we raised our yearend forecast to USD 6500/mt (USD 5900/mt, previously) and to for nickel prices to USD 11,000/ton (USD 10,200/ton, previously).  

Adjusted YE17 forecasts:

- Iron ore: maintained at USD 60/ton 

- Copper: rose to USD 6,500 from USD 5,900/ton

- Aluminum: rose to USD 2,030/ton from USD 1,900/ton

- Zinc: rose to USD 2,950 from USD 2,700/ton

- Nickel: rose to USD 11,000/ton from USD 10,200/ton

- Lead: rose to USD 2,300/ton from USD 2,035/ton

- Tin: maintained at USD 19,400/ton

Nonetheless, we still forecast a 3.1% decline in the ICI Metals as the Chinese economy continues to decelerate in 4Q17.

Oil: Higher prices in 2017, no changes for 2018

Oil prices continued to rally in October, with WTI close to USD 54/bbl and Brent at USD 61/bbl. This movement was due to rising geopolitical uncertainty in the Middle East and expectations of continued curbs on OPEC production. We still estimate that the WTI range of $45-50/bbl can stabilize the US rig count and helps to balance the market in 2018.

Due to the recent recovery in oil prices, we slightly rose our yearend WTI price forecasts to USD 50/barrel (from USD 45/bbl) and our yearend Brent forecast to USD 53/bbl. For 2018, we maintain our forecasts at USD 45/bbl for WTI and at USD 47/bbl.

Grains: Lower wheat and corn prices

Wheat and corn prices have dropped by 6.6% and and 2.7%, respectively, since the end of September. In the meantime, soybean prices have raised 0.6%. 

The drop in wheat prices is related to the expectation of surplus in supply, due to the favorable weather, and to the dollar appreciation, that diminishes the competitive of the U.S. grain in the international market. As corn and wheat are substitutes, corn prices also decreased.

We slightly lowered our YE17 price forecasts for corn (to USD 3.6/bushel from USD 3.85/bushel) and wheat (to USD 4.4/bushel from USD 4.6/bushel), incorporating the recent decreases.

Sugar/Coffee: Millers shift production to Ethanol

International contracts for raw sugar and for coffee have increased by 8.9% and 0.4%, respectively, since the end of September. 

The increase in sugar prices may be explained by the shift in the production, from sugar to ethanol. As the current parity between sugar and ethanol is favorable to the biofuel, Brazilian mills started producing more ethanol, which boosted sugar prices.

Our sugar price forecast for YE17 is unchanged, at USD 0.146/lb. Nonetheless, we have adjusted our YE17 price forecast for coffee to USD 1.23/lb form USD 1.35/lb.


 

Paula Yamaguti
Laura Pitta


 

For the full report, see enclosed file



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