Slowdown, but with a soft landing

- Short view: Weaker growth for longer "Commodities witnessed a pronounced sell-off in late August led by disappointing economic data. However, since then, prices of most products have risen despite little improvement in fundamentals. Volatility will probably remain high in H2, but heading into 2011 the prices of oil and base metals should gradually start to move higher as the business cycle matures and a soft landing on the back of the current mid-cycle slowdown is eventually confirmed."
- Energy: Soft patch ahead "Weakness is materialising in the oil market with both OECD and non-OECD demand softening. Due to lower GDP projections, we have taken down our forecasts for oil consumption in 2010 and introduce cautiously optimistic 2011 estimates. We now see stocks building for this year on average and postpone our call for a decline in world oil inventories to 2011. The OPEC October meeting will focus on quota compliance."
- Base metals: Still risk of a correction "Declines in global PMIs during the autumn should prove challenging for base metals. Notwithstanding, we continue to see the direction as being upwards and recommend buyers take advantage of almost inevitable price setbacks over the next couple of months to position for higher 2011 levels, especially for copper."
- Grains: Focus on tightness in corn "Wheat has showed continued strength but attention is shifting to corn, the market for which is growing increasingly tight. The projected output shortfalls for this year are unlikely to change the outlook for near-record harvests of most grains, but with demand simultaneously rising, stocks-to-use ratios are declining to less comfortable levels."
- Hedging: Consumers should await correction "We suggest consumers await setbacks in metals, crude oil and crack spreads for distillates before locking in 2011 prices for e.g. diesel."

DenDanske Commodities Monthly 20100922

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