Commodities: Energy and grains in focus as metals pause

Commodities: Energy and grains in focus as metals pause

Quarterly Outlook
Ole Hansen

Head of Commodity Strategy

Summary:  Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.


Metal sector takes backseat in Q3

In 2024, we focused on the metal sector as a potential winner for the year and beyond, while highlighting why the year-long consolidation was ending.  As of now, the Bloomberg Commodity Total Return Index is up more than 5% for the year, with all sectors except grains contributing to this rise. Despite a setback in the energy sector during the second quarter due to a deflated geopolitical risk premium, the metal sectors continued higher. Gold and copper reached new record highs before pausing, and silver hit levels not seen in 13 years.

Robust demand, production challenges across key commodities, and the prospect of lower funding costs supports a restocking phase. These factors could drive the Bloomberg Commodity Total Return Index towards a +10% gain for the year. While we maintain a positive outlook for the coming quarter, we see the energy and agriculture sectors as potential winners. Metal sectors are expected to consolidate as investors adapt to higher prices. Industrial metals require a recovery in Chinese demand to justify higher prices at this stage.

Crude supported by OPEC’s line in the sand; grains vulnerable to weather volatility 

The energy sector saw the second-quarter demand for crude oil and fuel ease more than expected. We expect robust demand to return in the third quarter, driven by increased mobility and high energy demand for cooling amid seasonal heatwaves across the Middle East and Asia. This and OPEC production restraints support our positive sector outlook, which includes natural gas, and we see Brent crude remaining in a wide USD 75 to USD 90 range.

The grains sector is showing signs of recovery, after nearly two years of losses. This is partly due to short covering by speculators who held a record net short position just before a challenging start to the current growing season. Adverse weather from southern Brazil to Europe and Russia has raised concerns about rebuilding stock levels. Wheat production in Russia has seen significant downgrades, only partially offset by a positive outlook for US production. Dry weather conditions across key production areas will likely continue to underpin soft commodities from cocoa and coffee to sugar.

Metals take a breather following run to record highs

Copper reached a record high earlier this year. While we believe in the long-term upward trajectory, current soft demand in China, where stock levels have risen to pandemic-era highs, suggests that the timing was off. As Peter Garnry highlighted in his equity outlook, the electrification of the world is a game changer supporting copper, the number one conductor of electricity. However, while the long-term outlook points to higher copper prices, the short-term outlook needs to improve before prices eventually move higher, a development that is unlikely to emerge in earnest before 2025 and beyond, when the funnel of new supply begins to dry out.

The gold and silver surge during the first half year may trigger a period of consolidation, while investors adopt to higher prices. But overall, we see no major change in the reason for owning precious metals, and with the prospect of US rate cuts during the second half inviting back ETF investors, a net selling group since 2022, we see higher prices at year-end. Central bank buying, one of the major engines behind the gold rally in recent years, may also slow in the short-term, as highlighted by the People’s Bank of China, which halted purchases in May after 18 months of non-stop buying. We maintain our end-of-year call for gold at USD 2,500 per ounce, while raising silver to USD 35 per ounce. 

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.