As 2013 comes to a close, several analysts have already published their predictions for the coming year with most remaining cautiously optimistic about the global economy in 2014. So far this year, however, commodity markets have struggled to stay out of the red, with many analysts speculating that the epic commodity boom seen in recent years is finally over. Though on the equity side, commodity producers have benefited from this year’s bull run, with oil and gas companies in particular logging in double digit gains [for more commodity news and analysis subscribe to our free newsletter].
In 2013, only a handful of commodities managed to log in gains, including cocoa, soybean meal, orange juice, RBOB gasoline, and Brent. According to most analysts, the story for commodities in 2014 remains quite grim. Below, we highlight what some of the top banks are saying about the space.
Franciso Blanch, head of Commodities and Derivatives Research at BofA / Merrill Lynch commented: “We have a moderately negative view of commodities in 2014. Our cautious view is based on key markets – like oil, U.S. natural gas, iron ore – moving into surplus, a strong dollar outlook and potential return of Iranian/Libyan oil. Commodities facing supply constraints, such as zinc, gasoil or platinum, may outperform, but gold prices will face headwinds” [see The Next Big Industry: Sand].
BofA cited that it expects oil prices to decline in 2014, mostly due to increased production and surpluses from non-OPEC countries. Analysts expect Brent to fall to $105 a barrel in 2014 from $109 in 2013; WTI is forecasted to drop to $92 a barrel from $97.
For metals, BofA is underweight in precious metals and is neutral on base metals. Analyst believe gold will drop to $1,100 an ounce in 2014. The bank favors nickel and zinc [see also What To Do With Losing Gold Positions].
In agricultural commodities, BofA remains neutral on livestock, grains, oilseeds, and soft commodities. It is somewhat bullish on live cattle.
Barclays Sees Continued Outflows
London-based Barclays emphasized that it sees the outflow of money from commodities not ending anytime soon, at least not in the first quarter of 2014. Similar to BofA, Barclays does see some bright spots in the space, particularly in nickel. Analysts stated: “Most base metals have been stuck in structural surplus to a greater or lesser degree since 2007/08 after what was one of the strongest-ever periods of supply growth. However, 2014 is likely to mark the end of this phase.” In 2014, Barclays expects nickel to average $14,750 in the first quarter, though there is still uncertainty concerning the potential Indonesian export ban.
In other metals, Barclays advised investors to short gold, as it expects the precious metal to fall to $1,350 an ounce in the first quarter and to $1,270 by the end of 2014. On the energy front, Barclays sees Brent averaging $101 in the first quarter and $108 for the fourth quarter of 2014; WTI is expected to be at $95 in Q1 and a high of $99 by the end of 2014.
Goldman Sachs: Gold Is a “Slam Dunk” Sell in 2014
Goldman Sachs analyst Jeffrey Currie stated: “Last year, we pointed to the ongoing shift in our commodity views, ultimately towards downside price risk. The impact of supply responses to the period of extraordinary price pressure continues to flow through the system.” In 2014, Goldman has extremely bearish views on one commodity in particular: gold. Next year, analysts expect the precious metal to drop to $1050 at the end of the year, and state that gold is a “slam dunk” sell in 2014 as the U.S. economy continues to pick up steam.
Goldman also noted that in addition to gold, soybeans and copper will likely drop at least 15% next year. By the end of 2014, the firm sees soybeans at $9.50 a bushel, copper at $6,200, and iron ore at $108 [see A Closer Look At EIA's Latest Short-Term Energy Outlook].
Outside the commodity space, Goldman has a rather cheery outlook on the global economy: “Looking into 2014 and 2015 we expect broad-based acceleration in global growth towards trend, at a gradual pace.”
Disclosure: No positions at time of writing