London, 6 October 2011

Standard Bank: As we head into Q4:11, our view on commodities remains largely unchanged from three months ago. We still believe that upside for base metals and energy is capped, and that gold will push higher in Q4:11.

"Over the past few weeks, we have often been asked whether commodities are pricing in a recession already. Six weeks ago, we didn’t think so. However, after the violent moves in commodity prices over the past three weeks, we believe that certain commodities have fallen too far, while others could fall more.

"We believe that policy risk, especially in Europe, remains elevated, and the current cyclical slowdown is much more pronounced. We therefore do not expect much upside yet for most commodities. However, our forecasts reflect an expectation of higher commodity prices in 2012.

"In Q4:11, we would remain cautious, and in general would look to sell base metals into rallies rather than worry, just yet, about missing a potential dip/entry point for metals such as copper for which, despite a slowdown in demand, we still expect a deficit in 2012 and 2013.

"We maintain our long gold position and believe that conditions favour gold for a push higher in Q4:11. This would be driven not only by low real global interest rates, but also by growth in global liquidity. Also, physical demand is still strong.

"We believe that palladium supply and demand will incur a large, ever growing deficit over the next five years, while platinum should enter a deficit market only in 2014. In the current economic environment, we maintain that demand will remain a constraint, unable to push prices higher on a sustainable basis in Q4:11. We therefore still prefer to view platinum and palladium from a cost-push perspective rather than a demand-pull perspective.

"We expect iron ore prices to come under downward pressure in Q4:11 but nevertheless remain at fairly healthy levels relative to the cost-of-production. We maintain our positive but slowing steel growth profile over the next few years, reaching a level of c.800mt by 2014 (compared to 750mt previously).

"We expect oil to remain under pressure in Q4:11, while the spread between WTI and Brent should remain wide, driven by hedging and investment money flows. For the long term, we believe that the oil price will be anchored at around $95/ bbl (in real terms) for two reasons: (a) major oil producers have hiked their CAPEX spending, and (b) we expect cost pressures for oil production, especially from non-conventional sources, to ramp up again as a result of broad commodity-led price increases."

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