Key Commodity Sectors Expected to Bottom Out in Coming Months, According to UBS

UBS strategists predict that major commodity sectors are likely to bottom out in the coming months as current market challenges begin to ease.

Despite a lackluster performance across most commodity categories—barring precious metals—the overall outlook remains positive, with expectations for sector-wide recovery and growth extending into 2025. Analysts forecast total returns of at least 10% for the UBS Commodity Index over the next 6-12 months.

The energy sector, in particular, has faced significant pressures due to macroeconomic concerns in the US and Europe, reduced refinery activity, and declining crude imports from China. These factors have driven oil prices to multi-month lows, prompting speculation about market complacency. UBS anticipates a rebound in oil prices, driven by increased compliance among OPEC+ members and a steady decrease in global oil inventories. The firm projects that oil prices will exceed $80 per barrel, aided by global interest rate cuts which could alleviate recession risks.

The industrial metals sector has also been impacted by disappointing economic data from China, especially related to its property and credit markets. Nevertheless, UBS maintains a bullish outlook, citing the ongoing energy transition as a key growth catalyst. Transitioning to a net-zero global economy is estimated to require around $100 trillion by 2050, with essential industrial metals such as lithium and aluminum playing crucial roles in electrification and renewable energy projects. Analysts expect double-digit returns for industrial metals over the next year, fueled by rising demand in support of decarbonization efforts.

Gold has shown resilience in 2024, and UBS forcasts further price increases as central banks continue to accumulate reserves, while rate cuts by the Federal Reserve may stimulate demand from ETF investors. The brokerage is maintaining its prediction for gold prices to reach $2,700 per ounce by mid-2025.

Silver, which often moves in alignment with gold, is anticipated to benefit from improving industrial production. UBS perceives silver as having strong potential to make up lost ground in the coming months.

When it comes to agricultural commodities, UBS expresses cautious optimism. The firm points to weather-related risks in Latin America and favorable supply-demand dynamics as critical factors at play. While performance has been mixed, some soft commodities, such as sugar, are expected to see low double-digit percentage price increases over the next six months, with UBS holding a moderate overweight recommendation in this sector.