Geopolitics, economic growth, climate, monetary and fiscal policy… The raw materials market is one of the most permeable to more and more catalysts and, without a doubt, one of the most interconnected of all those on the investing planet. This is what he recognizes Kerstin Hottner, head of commodities at the Swiss management company Vontobel who highlights the need for raw materials managers to be aware not only of the evolution of the interest rates of the dollar, or of energy, but also of what OPEC does, the growth of global GDP, the stimuli to the Chinese economy or even the climate in different regions of the planet.
At what levels do you see oil for 2025?
The oil market is very delicate. At the moment, the fundamentals don’t look bad. Inventories are low and OPEC continues to keep its barrels off the market. But if the cartel returns its barrels to the market next year, which would mean about 180,000 more per day, added to all those from the countries that are not part of OPEC, the growth in production would be quite rapid. That is, if the US, Brazil, Guyana, Canada, etc. If they produce what we expect them to produce and OPEC returns to the market, then the market will definitely be oversupplied and oil could fall to $50, the breakeven point for shale producers in the US to force them to close or reduce production. Iran is the counterfactor here. We don’t know if it will have to withdraw its barrels or if it will no longer be able to export as much, which would balance the market quite a bit. That is, the market depends a little on geopolitics, but in general we have a bearish outlook for oil for 2025.
Geopolitics, is the great ‘driver’ of crude oil?
I think in the end it always depends on several factors, not just one. In the field of raw materials it is always important to know how much supply reaches the market. There may be wars, but if in the end it does not affect the supply and the oil reaches the world market, then although occasionally oil prices may move around 100-120 as we saw with Russia two years ago for a few weeks , then it should return over time. I think in the end the long-term drivers are production, GDP growth and global demand. Demand growth is fine. I think this year it will grow by around one million barrels, which is the average for the last 20 years. But there is a structural problem and it is China. It is and has been the largest oil importer in the world. However, some structural changes are occurring. They have an immense EV penetration rate, so around 50% of car sales now go to EVs, already taking a few hundred thousand barrels of gasoline away from demand. Additionally, they have switched from diesel trucks to LNG trucks because natural gas was cheaper – and still is – and that also takes a few hundred thousand barrels away from the oil market. And this is not something that is going to change. Therefore, China will likely no longer be the driver of demand growth, as it has been for the past 20 years. They were responsible for around 50% of demand growth each year. And it will cease to be. And this is a structural issue.
Which raw materials have the most potential?
We still like precious metals. Gold and silver have some potential. We also benefited from its price rise in the fund, we were overweight. That was our greatest conviction in the last two months. We took some profits now, we reduced risk before the election in what has proven to be a good move, but gold has a lot going for it, so if there are more interest rate cuts, we will obviously see more flows of ETFs. Gold ETFs have been quite disappointing. Now that interest rates are falling we should see more ETF flows and what has been a big driver of course has been the buying of gold by central banks in the last two years and this is not something that will go away either. to disappear. India, Singapore, Turkey, Poland… They are all buying gold and trying to de-dollarize their reserves, dumping US dollar denominated assets and buying gold. And this is not something that will end in a few months, this is something that will last several years, maybe even a decade. And this, added to more ETF flows, will probably support the good performance of gold in the market.
Trump, is he good for raw materials?
Higher tariffs and consequently lower growth – probably – and also lower immigration is not good for raw materials in general. A higher or stronger dollar is not especially good for them either. There are many counterfactors that cannot support raw materials. But I think if we go back to Trump, the commodity that would probably suffer the most is the grain market. Soybeans, for example. However, agricultural materials are not the only ones affected. For metals, Trump’s arrival is not good either, because China is exporting many products that it produces with copper, aluminum, zinc, etc., such as electric vehicles, solar panels… and more tariffs do not help. Despite everything, the impact will ultimately depend on how the US and China negotiate. What we have learned so far is that Trump should be taken seriously, but not literally. So when you talk about 60% tariffs on China, it’s more of a negotiating tool.
Do you see more opportunities among metals?
I think copper and aluminum will suffer a bit in the coming months. I wouldn’t touch base metals in the coming months because Trump will intensify his speech around tariffs to increase his bargaining power. I believe this risk has not been fully priced into the metals market. But once China is certain of the tariff policy that the US wants to implement, it will increase its stimuli, which will impact its infrastructure and will also try to stimulate domestic consumption and this will then support base metals. So I think starting in the second quarter of 2025, there will be a good opportunity for copper and aluminum. We also like, but structurally, tin. It is a very small raw material, but it is used in electronics, in circuits. There are only a few countries that produce tin, but demand growth is substantial in the coming years, so automation and electrification are pushing and the deficit market in which it is immersed will continue to be so.
Do you now expect changes in monetary policy that could affect raw materials?
What worries the market right now is that we won’t see as many interest rate cuts next year. We may see another cut in December, of 25 basis points, but I think that is not clear either and that the market price is, for the moment, three cuts of 25 basis points next year. If we see high tariffs, if we see higher inflation, then the Fed might not be able to deliver on that, and we’ll see higher rates for longer. This is definitely a problem. Perhaps more for the bond markets and to a lesser extent the equity markets. For raw materials, perhaps it plays a small role, they are ultimately not a big catalyst. What GDP growth does is more important. Maybe for gold a little, but only marginally.
Automakers are announcing that they are not going to grow as they expected. Bad news for palladium or platinum?
Yes. I think it has already materialized in its price. Palladium is trading close to 800 dollars for the almost 3,000 that were paid in 2022. So I think it is already discounted in its price. Now, because prices are so low, some producers in North America have begun to reduce production. We haven’t seen it in South Africa, but if we see it there too, I think it could mean that next year their prices will go up. The growth of electric vehicles is stellar, but in the last year, it has also been a bit disappointing compared to the high expectations that had been created. Also because, especially in Europe, people have been buying more hybrids and fewer pure electric vehicles, which means palladium and platinum are still needed. I think this is positive for both, but in the long term and with the penetration of electric vehicles, their prices will go down. Platinum, it is true, has a longer run, because the demand for palladium from the automotive industry represents 80% of total palladium production, while in the case of platinum, it is around 40%. That is, its drivers are more diverse and include jewelry, hydrogen, and many other things that could support its price.
Path to appropriate diversification
For the head of commodities at the Swiss management company Vontobel, the raw materials market is one of the most interconnected in the financial field on the entire planet. Hottner, in fact, assures that although the reference index of the Vontobel Fund – Commodity H (hedged) EUR is the Bloomberg Commodity Index, which reflects the prices of 24 commodities, its investment universe is broader and includes some raw materials from outside this reference such as tin or cocoa, for example.
“We can invest in around 30 raw materials, and although we are now invested in only 25 raw materials it is a clear example of diversification,” he explains. “In addition,” he continues, “sectors respond to very, very different factors. Grains respond to weather conditions, American natural gas too, precious metals to interest rates and the dollar, energy to what the economy does. OPEC, GDP growth and geopolitics and base metals, what China does. There are many and diverse factors that influence it, so just by maintaining this broad basket of raw materials there is already great diversification potential.” .
In fact, the manager highlights how the evolution of the Bloomberg Commodity Index It is closely linked to the evolution of inflation – even more closely than the evolution of gold itself, as is often believed – and is thus positioned as one of the best ways to protect yourself from inflation. And even more so if you operate in the market with a fund that invests through derivatives in raw materials and not via variable income, with companies dedicated to the extraction or commercialization of basic resources.
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