Commodities are poised to lock-in a solid performance this year and they’re on an upward trajectory in 2018. Bart Melek, Global Head of Commodity Strategy, TD Securities, shares his 2018 commodities outlook and reveals which commodities he thinks could perform best.
Great to be here, Sara.
I want to kick things off by bringing up your chart with your 2018 commodities outlook. At the top-left side of your chart, let's look at precious metals. This is gold, silver, and platinum. You say, this year, monetary policy for central banks is a pretty important part of the story. Why is that?
Yes, it is. Well, for two reasons. One reason is we think that monetary policy will drive the US dollar lower next year, and the other reason is we don't think central banks are going to be overly aggressive when they are removing some of the monetary accommodation. This means that both opportunity and carry costs aren't going to be very high. This means that gold isn't going to be very expensive to hold relative to other assets.
Moving to base metals, you say you like two-- zinc and copper. What's the story there?
Well, the story is pretty much based on the fundamentals. Zinc is one of our favorite ones, mainly because we expect a fairly deep deficit in the zinc market going forward. And we think that's going to tighten up this market. On the other hand, we're also looking at demand, which is fairly robust for the metals. So it is benefiting from not too much supply and decent demand outlook. Copper, we think, is a fairly balanced market, but demand should look robust as well into next year, maybe not as good as it was in 2017 from a growth perspective, but solid nonetheless.
Moving to energy markets. You have a pretty bullish outlook for oil, and one of the things you say is the market is looking robust on all fronts. How so?
Well, on the demand side, it is very, very good. This year, we have locked in a very strong growth rate of about 1 and 1/2 million barrels per day. Next year looks a little weaker but still very strong at about 1.3, maybe more, millions of barrels per day growth. And the supply side seems to be very well contained. OPEC seems very determined to balance the market. And at Vienna, the other day, they've made that fairly explicit.
You mentioned Vienna, and one of the cornerstones to your outlook is that OPEC and non-OPEC members that are part of this production cut deal, that they stay committed to that. What are some of the other risk factors that you're looking at?
Well, the risk factor is that shale producers are a lot more aggressive on the investment side of the equation and beef up production a lot more than we expect. That, in fact, is exactly what OPEC is concerned about as well. But they have counteracted that quite wisely. In Vienna, they've said that they are flexible and will adjust production, depending on what the market fundamentals look like. And this implies that they could go even deeper in the cuts if required.
To close things off, when I had you here last year, I asked you what your top pick for 2017 was, and you told me it was zinc. For 2018, which commodity are you most excited about?
We very much like zinc still, and we like platinum and silver.
Thank you very much.
Thank you so much.