Geopolitics, economic growth, climate, monetary and fiscal policy… The commodities market is one of the most permeable to ever-increasing 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 raw materials at the Swiss management company Vontobel which highlights the need for commodity managers to be aware not only of the evolution of dollar interest rates, or energy, but also of what OPEC is doing, of global GDP growth , stimuli from the Chinese economy or even the climate in different regions of the planet.
What levels do you see oil at for 2025?
The oil market is very delicate. At the moment, the fundamentals don’t look bad. Stocks are low and OPEC continues to keep its barrels off the market. But if the cartel put its barrels back on the market next year, which would mean about 180,000 more barrels per day, added to all those from non-OPEC countries, the growth in production would be quite fast. In other words, if the United States, Brazil, Guyana, Canada, etc. If they produce what we expect of them and OPEC comes back into the market, then the market will certainly be in surplus and oil could fall to $50, the break-even point for U.S. shale producers for force them to close or reduce their production. Iran is the counter-factor here. We do not 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, the great “engine” of crude oil?
I think in the end it always depends on several factors, not just one. In the commodity business, it is always important to know how much supply is coming into the market. There may be wars, but if ultimately it does not affect supply and oil comes to the world market, then even if occasionally oil prices may hover around 100-120 as we We saw with Russia two years ago for a few weeks, so he should come back in time. I think ultimately the long-term drivers are production, GDP growth and global demand. Demand growth is doing well. I think this year it will increase by about a million barrels, which is the average of the last 20 years. But there is a structural problem and it is China. It is and remains the largest importer of oil in the world. However, some structural changes are occurring. They have immense EV penetration, so about 50% of car sales are now going to EVs, which is already taking a few hundred thousand barrels of gasoline out of demand. Plus, they switched from diesel trucks to LNG trucks because natural gas was cheaper – and still is – and that also takes a few hundred thousand barrels out of the oil market. And that’s not something that’s going to change. As a result, China will likely no longer be the engine of demand growth as it has been over the past 20 years. They were responsible for about 50% of the growth in demand each year. And it will cease to be so. And it’s a structural problem.
Which raw materials have the most potential?
We still love precious metals. Gold and silver have some potential. We also benefited from the increase in the fund price; we were overweight. This was our biggest conviction over the last two months. We took some profits now, we reduced risk before the election which turned out to be a good decision, but gold has a lot of upside so if there are more rate cuts interest, we will obviously see more ETF flows. 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 has of course been the buying of gold by central banks over the last couple of years and this is not is not something that will disappear either. India, Singapore, Turkey, Poland… They are all buying gold and trying to dedollarize their reserves, getting rid of US dollar-denominated assets and buying gold. And this is not something that will end in a few months, it is something that will last several years, maybe even a decade. And this, coupled with more ETF flows, will likely support gold’s strong performance in the market.
Is Trump good for commodities?
Higher tariffs and therefore lower growth – probably – as well as lower immigration are not good for raw materials in general. A higher or stronger dollar isn’t particularly good for them either. There are many counterfeiters who cannot back the raw materials. But I think if we go back to Trump, the commodity that would probably suffer the most is the grain market. Soya, for example. But agricultural materials are not the only ones affected. For metals, the arrival of Trump is also not good, because China exports many products that it makes with copper, aluminum, zinc, etc., such as electric vehicles, panels solar… and more customs duties don’t help. Still, the impact will ultimately depend on how the United States 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 won’t touch base metals in the coming months as Trump will step up his rhetoric on tariffs to increase his negotiating power. I think this risk has not been fully priced in by the metals market. But once China is sure of the tariff policy that the US wants to implement, it will increase its stimuli, which will impact its infrastructure and also try to boost domestic consumption, which will then support metals basic. So I think from the second quarter of 2025 there will be good opportunities 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 growing and the deficit market it is immersed in will continue to grow. ‘be.
Are you now expecting changes in monetary policy that could affect commodities?
What’s worrying the market right now is that we won’t see as many interest rate cuts next year. We could see another cut in December, of 25 basis points, but I think that’s not clear either and the market price is, at the moment, three 25 basis point cuts a year. next year. If we see high tariffs, if we see higher inflation, then the Fed might not be able to achieve that, and we’ll see higher rates for longer. This is definitely a problem. Perhaps more for bond markets and to a lesser extent for equity markets. For raw materials, this perhaps plays a small role, they are ultimately not a big catalyst. What GDP growth does is more important. Maybe a little for gold, but only marginally.
Automakers are announcing that they will not experience growth as they hoped. Bad news for palladium or platinum?
Yes, I think that has already materialized in its price. Palladium is trading at almost $800 for the almost $3,000 that was paid in 2022. So I think it’s already discounted in price. Today, due to low prices, some North American producers have started to reduce production. We haven’t seen it in South Africa, but if we see it there too, I think it could mean their prices will increase next year. The growth of electric vehicles is meteoric, but last year it was also a bit disappointing compared to the high expectations that had been created. Also because, especially in Europe, people are buying more hybrid vehicles and fewer pure electric vehicles, which means palladium and platinum are still needed. I think it’s positive for both, but in the long term and with the penetration of electric vehicles, their prices will fall. It is true that platinum has a longer lifespan, because the demand for palladium from the automotive industry represents 80% of the total palladium production, while in the case of platinum it is around 40%. In other words, its factors are more diversified and include jewelry, hydrogen and many other elements that can support its price.
The path to appropriate diversification
For the head of raw materials at the Swiss management company Vontobel, the raw materials market is one of the most interconnected on the planet in the financial sector. Hottner ensures 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 certain commodities external to this reference. like tin or cocoa, for example.
“We can invest in around 30 commodities, and even if we now invest in only 25 commodities, it is a clear example of diversification,” he explains. “Furthermore,” he continues, “sectors react to very, very different factors. Grains react to weather conditions, US natural gas does, precious metals react to interest rates and the dollar, energy to what the economy is doing, GDP growth and geopolitics and base metals, what China is doing There are many and diverse factors that influence it, so just maintaining this large basket of. raw materials already presents great potential for diversification.
Indeed, the manager underlines how the evolution of Bloomberg Commodities 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 of inflation. And even more so if you operate in the market with a fund that invests via commodity derivatives and not via variable income, with companies dedicated to the extraction or marketing of basic resources.
