Speculators – including 5,000 Chinese hedge funds trading in
commodities - are poised to extend into 2017 their greater interest in raw
material markets, Sucden Financial said, foreseeing hopes of revival in coffee
The closing weeks of 2016 have "until now been supportive of
the majority of the commodities complex", Sucden said, flagging speculators'
willingness in particular to support contracts with a bullish supply and demand
"A bullish fundamental picture has led to a promising
outlook," the broker said, flagging in particular gains in prices of the likes
of oil and zinc, and copper which has rallied more than 25% during the
"However, moves have been exaggerated by speculators."
And the "increase in speculative activity" in commodities, a
factor Sucden said had been evident "in the form of volatility", looks poised
to extent into 2017, with issues such as Donald Trump's election as US
president seen as encouraging interest.
"We anticipate investors may continue to use the asset class
as an inflation hedge as well as hunting for greater returns," the London-based
"Donald Trump is expected to target high levels of growth
through infrastructure investment which also may boost commodity prices."
"We suspect and are hopeful that those commodities that
boast a strong fundamental outlook will continue to attract interest from the
non-commercial investors," which include retail investors as well as in China
alone the estimated 5,000 hedge funds trading commodities.
"A few [are] managing assets of 10bn yuan ($1.4bn)."
Among agricultural commodities, coffee near-term boasted
upbeat fundamental factors, after a disappointing 2016 for robusta bean production,
thanks to dryness in the likes of Brazil and Vietnam.
"Strong demand which supported the market throughout 2016 is
set to continue into the coming year," Sucden said, if adding that prices will
soften "towards the second half of 2017" as production recovers and eases
While saying it had been "surprised" by the extent of the pullback
in coffee prices from highs last month, with spot New York arabica futures down
19% over the past seven weeks, mass liquidation by hedge funds of some of their
unusually large net long position appeared to have been involved.
"We suspect that a combination of long liquidations along
with algorithmic traders may have exaggerated moves."
The broker flagged hope that "if we see some stability [in
arabica futures] around 140 cents a pound, we could see futures push back
towards 150-160 cents a pound."
Sucden underlined the potential for demand to "support" the
soybean market too "going into 2017", given Chinese consumption forecast by the
US Department of Agriculture hitting a record 100.8m tonnes this season.
"We feel due to the strong demand outlook futures could
remain above $10.00 a bushel in the short term with potential for spike higher."
However, prices could "retreat back towards $9.50 a bushel" as
South American harvests ramp up, with downward pressure also potentially lying
ahead in terms of upbeat expectations for US spring sowings of the oilseed.
"Despite our reaffirmation that Chinese demand for soybeans
will remain high, there are certainly factors that could impact prices,
prompting a retreat to the downside," the broker said.