Near-term setbacks in store

- Short view: Running ahead of fundamentals "We look for Q3 to be relatively weak and stress that (further) setbacks in prices should be expected; price rises could be seen toward year-end as markets realise that the global economy is not heading for a worst-case scenario. Also, a weaker dollar and positive sentiment in equity markets should provide support to commodities."
- Energy: Demand recovery fizzling out "We are increasingly worried about oil demand in the near term and with Opec slipping further on compliance only a small deficit to be seen this year. This should leave forward demand cover at elevated levels and we expect oil to test the lower end of the USD70-80/barrel range in Q3. Brent to average USD79 this year and USD87 in 2011."
- Base metals: Look for Q3 correction "Base metals are highly sensitive to the business cycle and vulnerable to focus on a likely bubble in the Chinese construction sector. We have left our longer-term base metals forecasts largely unchanged but now pencil in marked softness in Q3. We see aluminium and copper going below USD2,000 and USD7,000 per tonne, respectively. Further out, we continue to see value in base metals, notably copper."
- Grains: Wheat spike but spill-over to be limited "Within grains, the recent wheat spike has surprised us but we highlight still huge stocks and that spill-over to soybeans and corn should be limited. Correction in store and limited potential for prices to rise in 2011."
- Hedging recommendations: Consumers should await correction "We recommend that clients on the consumer side should wait for a setback in industrial metals before locking in prices of copper and aluminium. Clients who are net sellers of wheat could in our view do well in fixing current price levels in the grain. On oil, we suggest awaiting a decline to below USD74/barrel for Brent before locking in expenses."

DenDanske Commodities Monthly 20100819

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