The major investment banks are generally negative in their outlook for commodities in 2014. The one wild card, experts note, is the timing of the Federal Reserve’s phase-out or tapering of its generous bond-buying program and how investors will react to this shift.
Oversupply is the main reason for Goldman Sachs’ bearish take on the sector.
“The impact of supply responses to the period of extraordinary price pressure [in the pre-recession years] continues to flow through the system,” the firm said in its 2014 outlook. “And we are forecasting significant declines (15%-plus) through 2014 in gold, copper, iron ore and soybeans.”
Bank of America-Merrill Lynch (BAC) has a similar take on commodities, which it characterizes as “moderately negative.”
“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,” Francisco Blanch, head of commodities and derivatives research for BofA explained in a 2014 outlook report. “Commodities facing supply constraints, such as zinc, gas oil or platinum, may outperform, but gold prices will face headwinds.”
The Merrill Lynch Commodity Index (MLCX) has dropped about 5% in 2013, and BofA-Merrill analysts expect it to decline by 1.6% in 2014.
Goldman Sachs (GS) says its views are “more stable” for this segment of the commodities sector, “although downside risk is growing over time and production losses out of Libya/Iran and other geopolitical risk is now playing a large role in keeping prices high.”
BofA, however, says its moderately negative outlook on global oil prices “reflects the simple fact that the market is moving from a relatively balanced position to a slightly oversupplied one due to increases in output from non-OPEC and Iran being partly offset by Saudi production cuts.”
Specifically, Blanch says the bank sees Brent crude dropping to an average price of $105 a barrel in 2014 vs. $109 in 2013 and West Texas intermediate crude declining to $92 a barrel from $97.
“The likely return of some Iranian oil and the potential comeback of Libyan supplies could trigger meaningful downside across the energy complex,” he explained.
Morgan Stanley says its equity analysts are downgrading energy to underweight. They also are lowering exposure in its equity portfolio from 9% to 7% based on lower expected Brent oil prices.
Gold, Other Metals