2020: What to Watch For in Commodities

2020: What to Watch For in Commodities

$DIA $SPY $QQQ, $RUTX, $VXX, $SOY, $CORN, $XAU, $CU, $USO

This is our 1st What to Watch in the commodities sector, it is an overview of what to expect. The picture mixed, complex picture that emerges. The list covers oil, gold, copper, iron ore, pork and more.

The year’s 1st full week of trading could be dominated by the Mideast crisis after the American assassination of 1 of the Iran’s most powerful generals. But as I see things after the close the equities shrugged it off.

Crude and gold surged on Monday after President Trump said he was prepared to strike Iran “in a disproportionate manner” if it hits any US target.

The complex number-crunching and informed guesswork used to generate year-to-come predictions in the global Crude Oil market have been thrown into disarray by the sharp escalation of tensions between Washington and Tehran. But I see is calming down in the weeks ahead.

Before the event investors were focused on whether continued efforts by OPEC and its allies to curb production would be sufficient to counter a global glut supported by rising US shale supply and new output from outside the cartel, including fields in Guyana. Remember, Iran sits atop the world’s 2nd largest salt dome, and Crude Oil and Nat Gas is very high quality, it is off the market.

Analysts had been forecasting WTI Crude Oil at just below 59/bbl, but Monday the benchmark rallied above 70 as the 2 sides traded ever harsher rhetoric.

Further gainers or decliners depend on developments this week, including potential risks to Crude Oil shipped via the Strait of Hormuz. Tensions between the US and Iran disrupted energy markets last year but the frames were short-lived.

Copper struggled to sustain a rally in Y 2019 as the trade dispute spurred destocking of inventories by manufacturers. Now, the outlook is turning brighter with the preliminary truce between Washington and Beijing easing demand concerns for the metal used in everything from automobiles to electronics. Potential output cuts by Chinese smelters also point to tighter supply at a time when stockpiles tracked by the LME are at the lowest in 9 months.

Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and Standard Chartered Plc are all Bullish copper as they predict a rebound in global consumption.

Citigroup forecasts China’s demand will expand 2.6% this year, underpinned by gains in grid investment. Prices remain above $6,000 a ton.

Gold just delivered a strong year for Bulls as the Fed cut rates, trade tensions hurt growth, central banks added to reserves and ETF holdings swelled.

The haven’s Northside run may not be over.

Goldman Sachs Group Inc., Citigroup Inc. and UBS Group AG have all said they’re looking for 1,600 oz and RBC Capital Markets is positive. Those calls were made before the Iranian crisis sent bullion due North.

Additional underlying positivity toward bullion comes as the Fed signals that rates will be on hold right throughout this year, at least until central bank officials have seen a “material reassessment” in their outlook.

Among other precious metals, palladium also demands attention as a persistent global deficit looks set to fuel gains far beyond 2,000 oz.

Bulls in arabica coffee, coming off its best year in 5, will be watching developments in Brazil, the Top producer and exporter. After Y 2019’s harvest was marred by irregular weather and poor quality, the country’s green bean stockpiles are set to drop to the lowest in more than 50 years, and any signs of more production issues could exacerbate the tight supply scenario.

In addition to a forecast world deficit in MY 2019-2020 technical indicators are strong, with the beans favored by Starbucks Corp. (NASDAQ:SBUX) moving above 50- 100- and 200-Day MAs. While traders will be looking for signs of increased output in the Brazilian real could raise prospects for increased supplies in the years ahead.

After a strong year, iron ore is expected to decline in Y 2020. The steelmaking material capped the biggest annual gain in 3 yrs in Y 2019 on a shortage triggered by a dam disaster at Brazil’s Vale SA. Prices, which hit as much as 120 a ton in July, ended the year near $90, while shares of miners such as BHP Group rose. Fortescue Metals Group Ltd.’s stock more than 2X.

Top producer Australia sees iron ore averaging $63 a ton, and the material is Morgan Stanley’s least-favored commodity. In China, steel demand is expected to fall as economic growth slows, hurting iron ore consumption.

Unprecedented outbreaks of African swine fever upended the pork trade in Y 2019, and whether the spread continues will be a key driver for meat markets going forward. The fallout lifted global meat prices to 5-yr highs and sent pork exports from Europe and elsewhere North. China’s hog population has collapsed, and traders will be eyeing whether a recovery in herds comes as quickly as some government officials have pledged.

Outside of Asia, the market will focus on whether the disease strikes any major pork shippers, risking further trade disruption. The virus has moved nearer to Poland’s border with Germany, a Key European producer, and officials are stockpiling fences and training boar-sniffing dogs in a bid to ward off the threat. It also remains to be seen by how much China will boost purchases of US pork after the nations reached the initial trade agreement.

Climate change and how governments, companies and funds respond will shape investment decisions in Y 2020 as never before.

This year, the amount of new wind and solar power generation capacity will cross the 200-gigawatt threshold, boosting the total to about 1,450 gigawatts, that is just shy of 20% of global installed capacity.

That shift will see renewables close the gap with Nat Gas as the biggest potential source of electricity behind coal, though their intermittent nature will leave them lagging behind in terms of actual output.

The variability will also increase challenges for grids and traditional utilities to keep all the lights on, while pressuring wholesale power prices on gusty or bright days.

Palm oil was 1 of the big winners among commodities in 2-H of Y 2019, and there are signals prices will remain well-supported. The most-used vegetable oil ended the year with a 44% gainer, the best showing in 10 years, lifted by concerns dry weather and haze will curb supplies from Top growers Indonesia and Malaysia, as well as prospects for strong biofuel demand.

The latest survey showed prices may average 2,400 ringgit ($587) a ton this Quarter, compared with 2,248 ringgit over all of Y 2019. Participants flagged Indonesia as a Key factor, with Southeast Asia’s Top economy boosting palm’s share in its biofuel blend to 30% from 20%. Still, questions remain on export markets, especially the EU’s limit on palm oil use.

US Nat Gas prices have slumped for 2 wks running, but the sell-off probably is not over, according to traders and analysts surveyed. Some 55% of respondents were Bearish, the most in more than 3 months, as mild weather slows the seasonal decline in stockpiles.

Soybean remained in favor with traders and analysts for a 3rd wk, helped by expectations that the US government will pare crop yields in an upcoming report.

Bullish sentiment on gold edged out Bearish and Neutral views as prices extended a rally fueled by recent USD weakness and tensions in the Middle East.

All world commodities prices, currencies and equities are quoted on the face page if Live Trading News.

Monday, the US major stock market indexes finished at: DJIA +68.50 at 28703.29, NAS Comp +50.70 at 9071.49, S&P 500 +11.43 at 3246.28

Volume: Trade on the NYSE came in at 978-M/shares exchanged

  • NAS Comp +1.1% YTD
  • DJIA +0.6% YTD
  • S&P 500 +0.5% YTD
  • Russell 2000 -0.3% YTD

HeffX-LTN’s overall technical outlook for the major US stock market indexes is Bullish to Very Bullish in here.

Looking ahead: The ISM Non-Manufacturing Index for December, the Trade Balance Report for November, and the Factory Orders report for November will be released Tuesday.

Have a terrific week

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge. Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.