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Commodities demand to endure: BofA

Keywords: Tags  Bank of America Merrill Lynch, Francisco Blanch, commodities outlook, oil and natural gas, platinum, copper, David Woo, Samuel Frizell

NEW YORK — Global demand for commodities likely will survive domestic and global threats such as the fiscal cliff and the euro crisis over the next two years, buoyed by global growth and a stronger Chinese economy, analysts said at the Bank of America Merrill Lynch Global Research 2013 Year Ahead news conference Tuesday.

"We’ve heard about the impending fiscal cliff. This could be a big risk to markets," said Francisco Blanch, head of global commodities and derivatives research at New York-based Bank of America Merrill Lynch. "(But) we expect global growth to be roughly 3.2 percent next year, and this will lend some support (to) commodity demand in general."

However, analysts at the news conference did not underplay the danger of the United States going over the fiscal cliff, which would result in billions of dollars in increased taxes and spending cuts and could cause the U.S. economy to spin into another recession.

"The market is too complacent about (this) $300-billion (fiscal) tightening," said David Woo, head of global rates and currencies research. "Think about China. China was already shaking in its boots because Europe, its largest trading partner, was tightening fiscal policy. Can you imagine if the U.S. tightened fiscal policy at the same time?"

The most dramatic development in the U.S. commodities market has been the massive growth in oil and natural gas production in North America. "The shale oil revolution is a completely new thing," Blanch told AMM on the sidelines of the news conference. "It has come out of nowhere in the past year."

The United States pays one-sixth of the price for its base load energy consumption compared with Japan and about one-third compared with Britain and the European Union, giving domestic producers a competitive advantage that likely will increase in coming years.

Companies based in the United States have sought to leverage increasing domestic oil and natural gas production in recent months by signing exclusive production contracts with expanding domestic gas producers or by acquiring the companies outright.

On average, consumers in the United States pay $630 million less for gas each day than consumers in the rest of the world, Blanch said. "How much is that? Well, give or take, that’s a little bit over 1 percent of GDP. Just gas alone. This is real money."

Platinum prices could rise next year on the back of mine disruptions in South Africa and a recovering European automotive market. "(If) you have a pickup in car sales in Europe, producers are going to have to go out and buy a lot of platinum. And guess what? Because of the disruptions at mines (in) South Africa, you’ll find they’re low," Blanch said, forecasting that platinum would average $1,738 per troy ounce in 2013.

Blanch said that a stronger Chinese economy could support copper prices next year, which he expects to average $8,313 per ton.

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