Bullish on commodities; Brent to hold steady: Barratt

Jonathan Barratt, CEO, BarrattsBulletin.com explains that he is very bullish on commodities in the first half of 2013 and expects gold to pick up  to USD1,850 an ounce in the second quarter of the calendar year 2013.

In an analysis on CNBC-TV18, Barrat indicates that the mismatch between demand and supply in gold is likely to support prices and expects Brent prices to be steady for rest of the year. He estimates Brent crude to face resistance at USD 125 per barrel-levels and point out that iron ore prices have rallied handsomely since September 2012.
Below is an edited transcript of the analysis on CNBC-TV18 Q: Will it be a happy New Year for commodities in 2013? Or does it look like this asset-class will play second fiddle to equities?
A: I think 2013, like 2012, is going to be quite an interesting year for commodities. We are certainly very bullish on the first and second quarter for all commodities. Of course when we look at that, we certainly have our favourite picks. Generally speaking, I think the primary input market will be that which will offer the most returns. Q: Throughout 2012, there has been a peaking-off in gold almost USD 250 - 300 from the peaks of over USD 1,900. How do you think gold will play out in 2013? Is the current USD 1,650-1,700 level likely to be the roof?
A: I think gold itself is going to be relatively quiet. We do focus on the supply and demand nature of the market. It does appear to be quite imbalanced. We have observed that if there is a lift in the inflationary pressure, then investors will start to go to the precious metal.
Another lure could be a weaker dollar. One of the interesting aspects is the safe-haven play for gold which needs to turn a little bit and make people little bit more confident. The need to have gold as a form of risk asset is perhaps not as prevalent today as it was in 2012.
So, the need to want to move into gold will not be based on the concerns in 2012. I think that might the tarnish the demand for gold. So if anything, a USD 1,630-1,650 is certainly a very good support. The supply and demand dynamics indicate that gold is still ready for demand. I would like to the demand for gold pick up in Q3 and Q4 to USD 1,850 and I am still angling for that level of USD 2,000 an ounce towards the close of the year.
I feel that the supply and demand dynamics certainly tilt in terms of a restriction in supply and that should support the price. Q: Besides gold, crude has a greater effect on India and that’s actually straddling at the USD 110 per barrel-mark for a while, for Brent in particular. What exactly is the range for crude?
A: I think crude is slightly different. You can see that it certainly has an element of being stronger in 2013. Crude is exceptionally interesting due to the advanced technology in the US in terms of factoring-in the ability to extract more oil out of the shale. The daily production estimates indicate that the US, prior to 2014, would come close to equaling the capacity of Saudi Arabia. With increased probability of the US becoming more self-sufficient in oil, the trade in crude oil can move only onwards and upwards.
The WTI and Brent could touch USD 150 per barrel though I don’t think they will get there. I think there will be a very steady year for Brent and West Texas. The only concerns are regarding the geopolitical developments in Syria. I can see crude in a range USD 85 per barrel on the downside and probably about USD 100-105 per barrel at the topside for WTI. For Brent, I think about USD 125 per barrel pretty much caps it on the top. Q: Will it be prudent to pick crude for possibly USD 115-120 per barrel on Brent?
A: I think so. I think that is a general area of relatively good resistance. When I look at the WTI market, I target the USD 100-102 per barrel levels. So, when investors look to see recovery in Q1 and Q2 the demand will edge out into crude and push it upto those levels. Q: What about the steel complex? Do you expect iron ore and coking-coal prices to largely pan out at current levels or will they fall given the capacity in the system? And likewise in steel, will the current uptrend continue or will steel kind of plateau out?
A: That's correct. There has been a 83-percent increase in the price of iron ore since the low in September and that’s dramatic. When I focus on what’s happening in the Far East and particularly in China where they have announced a new urbanisation programme, I can see the prices for iron ore remaining very steady and testing that historic high of USD 177 which was reached in September 2011.
The pace of infrastructure activity in China and Japan indicates that the demand for iron more will be quite strong in Q1 and Q2. And I have a feeling that iron ore will actually test those record highs and trade through them. Iron ore at USD 200 a dry tonne, I think, is very realistic and it may even push to USD 250. Q: What is your outlook for base metals? Since you are bullish on ferrous metals, do you think 2013 will be better for base metals in particular?
A: Obviously, we focus on copper for that is obviously a stand-out. At the beginning of 2012 we thought that the deficit in production would be bridged. It did not occur purely because economies were relatively weak and became weaker throughout the year. We revised the forecast for Q1 and Q2 and feel that a deficit situation will arise pretty soon.
In my mind, one of the main reasons for that is that a lot of the miners have cut back expansion programmes along with the tightness in supply in the complex at the moment. So if we do see that demand from China, Japan and Korea continuing to pick up, then there will probably be quite a bit of shortage in copper. The deficit will prevail cause some very hefty increases in prices.