J P Morgan Commodity Predictions for 2010

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JP Morgan has come out with their predictions for 2010 and said they see two principal drivers to commodity prices taking hold. The first is a return to the fundamentals of supply and demand driving prices. The second is the withdrawal of liquidity from the investment market as the US stimulus package is wound down in late 2010.

The bank forecasts “above-trend growth” in the global economy in 2010 and 2011, which it said was good in general for commodities but some commodities are expected to move in one direction while others are expected to go in another. Oil and oil products for example are in oversupply. Inventories of distillates, which include diesel and heating fuel, have risen beyond market expectations due to sluggish industrial demand and unseasonably warm weather in the United States, the world’s largest energy market. The surplus in distillates will have implications over the next three to four months in terms of prices the bank believes, saying they do not expect the oil price to go anywhere in the first quarter or even into the second.

For industrial metals, JPM expects prices to be fairly strong in the first half of 2010, before losing some momentum and consolidating through 2011, specifically calling out the following price points next year:

US$/metric ton

Current Price

Q1

Q2

Q3

Q4

Copper

$6,905

$7,350

$8,000

$6,800

$6,250

Aluminum

$2,268

$2,150

$2,400

$2,200

$2,000

Nickel

$17,625

$17,000

$17,500

$16,500

$16,000

Zinc

$2,440

$2,300

$2,700

$2,650

$2,500

Lead

$2,348

$2,300

$2,700

$2,650

$2,500

Tin

$15,950

$15,000

$15,500

$15,000

$15,000

Lead and copper demand is being driven by strong growth in China due to automotive and infrastructure investment. They have been the star performers in 2009 and look set to continue in 2010. Aluminum has confounded many predictions this year, ours included, despite rising LME stock levels it has powered ahead as physical tightness has resulted from rising demand meeting so much of the material in warehouses being tied up in long term financing deals. JPM see this strength continuing into 2010 and mill premiums for both extruded and rolled products in the semi’s markets appear to be supporting this prediction. Nickel and tin however have had a lackluster year. Nickel reacting recently to concerns over the reinstatement of a 5% Russian export tariff rose strongly but nickel stocks are at 150,498 tons, just below all-time highs and stainless demand remains weak.

The removal of liquidity in the second half of 2010 will, JPM believes, impact investor liquidity and hence the flow of money into the metals markets. In addition, the bank sees more metal coming onto the market as long term financing deals are gradually unwound. As a result, the bank sees most metals prices easing in the latter half of 2010 and early 2011.

–Stuart Burns

Comment (1)

  1. Sharon says:

    I think the global demands of the commodities must recover in 2010.

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