26 Feb 2013 11:49

Commodities Monthly: Demand lags fading tail risks

Globally, investors are breathing a sigh of relief, with tail risks declining. Growth in the US and China has stabilised while fears the euro zone may disintegrate have substantially decreased. As a result, exposure to equities and growth commodities such as oil and metals has surged, boosting valuations.

“Going forward we expect diverse commodity price developments based on supply constraints and the sporadic effects of intermittent speculative trading,” says Filip Petersson, Commodity strategist at SEB.

He says upside potential for Brent crude oil from present levels is limited and the risk of a further correction substantial. He forecasts an average Brent price slightly below 110 dollars per barrel for the full year.

Precious metals such as platinum and palladium however stand a good chance of rallying in the medium to long term, primarily based on supply constraints.

“We also see a tight supply for certain agricultural products, such as corn, which could push prices higher under certain circumstances” Petersson says.

He says the key to the outcome of the forthcoming grain season lies in soil moisture conditions existing in the U.S. Midwest when corn planting starts in April.