London, 6 January 2012

Research analysts at Deutsche Bank have released their latest forecasts for commodity prices. Ten years ago commodity prices began their long march higher in response to strong demand growth across the emerging markets and years of under-investment in new productive capacity. "Since super cycles in commodity markets typically last up to 20 years, one could argue that we are only half way through the current cycle," say Deutsche.

However, the ability of commodity prices to move higher in 2012 is not certain and will, in Deutsche's view, depend on whether the Fed’s efforts to stimulate growth are successful, whether China can engineer a soft landing and whether European policy-makers can find a market friendly solution to the region’s sovereign debt crisis. "If unsuccessful then the implications for global growth and hence world commodity demand would be bleak," warn Deutsche.

Key findings from Commodities: Walking The Tightrope include:

Commodities as an Asset Class: Momentum and carry have been the winning commodity index strategies in 2011. We expect their popularity will grow not least since long only commodity index strategies will remain vulnerable given the financial and economic traps that lie ahead.

Crude Oil: In our view, upside geopolitical risks outweigh the potential downside on prices from a slowing economy. Inventories are relatively low and supply and demand fundamentals point to declining OPEC spare capacity over time. We are therefore maintaining our relatively bullish price forecasts.

Refined Products: While slower global growth this year will be reflected in moderating oil demand growth, potential power capacity issues in Asia may provide upside surprises to the oil balance, particularly for gasoil and fuel oil.

US Natural Gas: Storage is high, temperatures have been warmer than normal and production continues at a strong pace. We have reduced our natural gas price forecast to USD3.50/mmBtu for 2012.

EU Power & Gas: After the volatility caused by the Fukushima nuclear accident last year, EU energy markets look set for a bleak 2012. We are concerned about slowing demand for power, gas, and CO2 allowances in the face of an expected contraction in GDP across the Eurozone.

Precious Metals: We expect gold prices will recover given negative real interest rates, central bank diversification, a resumption in US dollar weakness and ongoing risks to the European financial system. Within the PGM complex, we believe palladium is the best pick given its bias to the US and China.

Industrial Metals: We expect that near-term deflationary fears may continue to depress pricing for the base metals complex in the first quarter. However, we anticipate that accommodative monetary policy could help to dispel global growth concerns and lead to subsequent strength in Q2 and Q3.

Agriculture: For the next few weeks we expect La Niña may prove supportive to soybean and grain markets. Thereafter we expect prices across the complex to trend lower with the USDA Planting Intentions survey likely to be most bearish corn.

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Deutsche Bank Commodities Special Report research