The peak years of the China-driven supercycle saw unrelenting industrial commodity demand and supply failing to keep up. That is now well past. Supply is now the primary consideration driving our outlook for each commodity.
■ Bulks – there is too much supply. Coal prices may improve in CY15 as producers capitulate, but that just changes the outlook from grim to uninspiring. Iron ore is a couple of years behind coal, but following the same path to pitiless pricing with relentless supply expansions by major miners.
■ Base metal outlooks are diverse. We are positive for zinc and lead because there is insufficient supply. Prices need to rise to stimulate mining and refining. Conversely there seems to be too much supply for copper, although the true balance is shrouded by the temporary demand for financing applications. There's more nickel inventory than we thought, so supply constraints will take longer to bite, cooling the allure. Aluminium is finely balanced – in deficit currently, but price improvements threaten to bring on more supply and drown the emerging price recovery.
■ Our positive view for PGM's is based on supply struggling to keep up with steadily increasing demand, centred around vehicles. Supply is dominated by Russia, with geopolitical issues, and South Africa with its fractious unions and troubled mines. We expect stockpiles to contract over the next 18 months, opening a path to higher prices.
■ For gold and silver, demand is still critical. The increasing wealth of India and China is seeing stronger demand for gold and silver for jewellery and hoarding that should underpin the metal prices against the vagaries of interest rate and ETF movements.