Commodity Roundup: December 2014
Commodity prices mostly fell in December, led by losses in crude oil.
Crude oil prices plunged further as influential OPEC member Saudi Arabia hinted that it would not trim oil production even if price fell to as low as USD 20/bbl. Nevertheless, steadily falling oil prices pose a risk to profitability of oil extraction in US shale fields and Canadian oil sands. Expected slowdown in oil sector investment should eventually lead to narrowing in the supply-demand gap for crude oil. Consequently, we expect crude oil prices to recover in the second half of 2015 and pencil Brent to average USD 70/bbl in 2015.
Gold swung between gains and losses in December amid conflicting cues. Safe-haven demand (amid political uncertainty in Greece and global growth concerns) aided prices in the first half of the month. However, bullion came under pressure post the US FOMC policy meeting, which signalled that the Fed is on track to hike rates next year. The yellow-metal is poised to end the year on a flat note, around the USD 1,200/oz mark.
Industrial metal prices fell in December amid concerns over China’s growth prospects. A top Chinese government think-tank said that GDP growth is expected to slow down to 7.0% YoY in 2015 from estimated 7.3% in 2014. Nickel and lead fell by more than 7% each, while copper edged slightly lower (-1%) in December.
Agricultural commodities gained in December. However, on an annual basis, agri commodity prices are down, amid a comfortable supply scenario. Cotton has been one of the worst performers in this space, with prices down ~30% amid expectation of lower imports from China (the world’s largest importer), following the revision to its cotton stockpiling policy earlier this year.