Citigroup cuts commodity forecasts as rout resumes
CITIGROUP cut its commodities forecasts on concern slowing global growth will prolong the time it takes for markets to swing back into balance.
Shares of resources companies resumed their drop as raw material prices slid.
Brent crude may average $40 (R670) a barrel this year, compared with an estimate of $51 in a November report, while the outlook for nickel was cut 22 percent to $8 450 a ton, analysts including Ed Morse wrote in a report received yesterday.
Gold was a rare bright spot, with Citigroup raising its forecast 7.5 percent to $1 070 an ounce.
Commodities have been battered since the onset of 2016, with oil slumping to the lowest level since 2003, as gyrations in Chinese equities, a weaker yuan and signs of a slowing global economy spurred investors to shun risky assets. China reported the slowest annual growth since 1990 on Tuesday, the same day that the International Monetary Fund cut its world growth outlook.
Glencore chairman Tony Hayward, a former chief executive of BP, said this week that there was “too much oil”.
“Declining expectations of global growth are exacerbating the results of oversupply across commodity markets,” the analysts wrote in Tuesday’s report. The lower worldwide demand for raw materials promised “to prolong the time it will take for commodities to come into balance”, they said.
The Bloomberg commodity index, a measure of returns from 22 raw materials, retreated 0.5 percent by 1.37pm Singapore time, heading for its lowest close since January 1991. The gauge has lost 6.6 percent since the start of the year.
Resources equities tumbled across Asia yesterday, with shares of energy companies leading losses on the MSCI Asia Pacific index.
“The dramatic market selloff that started 2016 is impacting all sectors, pushing commodities down even further,” the Citigroup analysts wrote.
The bank expects Brent crude to average $52 in the final three months of 2016 compared with $40 between July and September and $31 in the second quarter.
Copper will average $4 650 a ton this year, while aluminium risks falling below $1 400 a ton in the second quarter, according to the report. – Bloomberg