Barclays favors nickel in 2014, bearish on gold and oil

Mon Dec 9, 2013 5:42pm EST

* Nickel forecast at $14,750 tonne in Q1; vs $13,955 now

* Brent seen averaging $101 a barrel in Q1 vs about $110 now

* Gold seen at $1,350 an ounce in Q1 and $1,270 by Q4 2014

By Barani Krishnan

NEW YORK, Dec 9 (Reuters) - Base metals, led by nickel, appear set to trend higher in 2014 due to tighter supplies, while unfavorable economics should keep pressure on gold and oil and prompt investors to avoid much of the commodity complex, Barclays said on Monday.

In another negative outlook on commodities from a major investment bank, London-based Barclays PLC said that outflow of money from the sector will not end soon, at least not in the first quarter.

It cited a litany of reasons, including comfortable supply levels in most raw materials; a still-sluggish global economy and the likely scaling back of the Federal Reserve's stimulus that had supported commodities.

"It is unlikely investors will warm to commodities in the near term," said Barclays, which until a few years ago was one of the biggest proponents of the sector. Goldman Sachs, often regarded Wall Street's most authoritative voice on commodities, and Citigroup have issued similarly sanguine outlooks in recent weeks.

NICKEL MOST FAVORED PLAY

Smaller stockpiles has base metals better positioned for gains than other commodities when the new year begins, with nickel in particular due to a planned export ban by Indonesia, Barclays said.

"Most base metals have been stuck in structural surplus to a greater or lesser degree since 2007/08 after what was one of the strongest-ever periods of supply growth. However, 2014 is likely to mark the end of this phase."

Nickel hit a one-month high on the London Metal Exchange on Monday, closing up 1.4 percent at $13,955 a tonne.

Barclays said it expects the metal to average $14,750 in the first quarter and above $15,000 for the rest of the year as the Indonesian ban potentially deprives the Chinese nickel-pig iron sector of crucial raw material.

"There remains some uncertainty over how strictly this ban will be implemented. Even if it is not, nickel prices are so low," it said. Nickel is down 18 percent so far this year.

Barclays said it expected aluminum and lead supplies to turn into a deficit in 2014, and zinc's surplus inventories to shrink dramatically like nickel's. It forecast modest supply growth in copper, the most-widely traded base metal.

OPEC SUPPLY WEIGHS ON OIL

In crude oil, it said the need for OPEC oil was diminishing and global inventories will climb if members of the producer group do not cut output. A sluggish global economy weighed on the outlook for oil, as did a decline in geopolitical risks in oil production areas following the nuclear agreement between Tehran and the global powers, it said.

Barclays projected oil's benchmark Brent crude to average $101 per barrel in the first quarter, versus Monday's level of nearly $110. It forecast a high of $108 for the final quarter of 2014. Brent is down almost 2 percent this year.

For U.S. crude, the projection was $95 a barrel in the first quarter, versus current prices near $98, and a high of $99 by the year-end. U.S. crude is up about 6 percent this year, outperforming Brent.

"SHORT" GOLD

In the case of gold, Barclays advised investors to "short", or bet on a fall in prices, the precious metal after March, its target period for any reduction in the Fed stimulus.

In spite of that, the bank had a higher price expectation for gold in 2014 versus Monday's traded levels -- a discrepancy it did not explain.

Barclays said gold was likely to average $1,350 an ounce in the first quarter, although it forecast a drop to $1,270 by the end of 2014. The spot price of gold hovered at $1,240 on Monday, down 26 percent so far this year and heading for its first yearly loss since 2000.

Barclays did not provide price forecasts for the agricultural markets or "softs" commodities such as coffee, sugar, coffee and cocoa. But it cited supply gains in corn and wheat from larger harvests in 2013/2014.

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