Trends in selected commodity markets
In March, the World Bank’s (WB’s) energy commodity price indices rose by 3.7% month- on-month (m-o-m), supported by booming crude oil prices, while non-energy prices increased at a slower pace of 0.6% (versus 2.7% in February), with food prices being up by the same rate as in the previous month (2.9%). In contrast, base metal prices posted a drop for the first time this year, of 1.04%. Commodity prices continued to be supported by positive macroeconomic data and geopolitical tensions; but the slowing of the Chinese economy seemed to have affected the base metal complex, while some grain prices reported slower increases, due to higher-than expected planted acres in the US.
The Henry Hub (HH) natural gas price plunged 14% m-o-m in March, a ninth consecutive monthly drop due to weak fundamentals. High stock levels and especially the large growth in US shale gas production in recent years are the reason behind the fall in HH natural gas prices. The market has been oversupplied for a long time and mild weather also added to depress gas prices in March.
The agricultural price index posted slower growth in March. Prices increased by 0.9% m-o-m, compared with 2.4% in February. Grain prices felt the pressure of bearish news, which revealed higher-than-expected levels of crops for this spring, especially corn. The Prospective Plantings report indicated the intention of US farmers to plant a record annual number of acres of corn and wheat, while the acreage for soybeans would be reduced. Nevertheless, the quarterly stocks report showed lower-than expected US stocks of corn, wheat and soybeans, as of 1 March. Thus, corn prices seemed to be moving according to two forces: the expectations of a large 2012–13 US corn crop, due to high acreage; and low levels of US inventories, as old crop supplies remain tight. As in the previous month, soybean prices performed better, since data was bullish for the complex. US export demand was higher, as a result of lower South American production, and Chinese imports were expected to increase. Therefore, with US acreage down year-on-year (y-o-y), US balances will tighten further.
The World Bank’s base metal price index declined by 1% m-o-m, compared with 4.6% growth in February. Contrary to the trend in February, the price-drop was across the complex, with copper being the least affected. The performance of base metal prices as a whole was following two opposite demand signals in the short term: on the one hand, an improvement in the global economy; and, on the other hand, softness in Chinese buying. This contrasted with the buoyant demand from the US. As a whole, inventories on the London Metal Exchange (LME) declined by 0.2% m-o-m to 6,707,178 tonnes, although the trend was diverse across the complex. Concerning imports, trade data from China in February showed increases for all base metals, except nickel.
According to major observers, demand for metal and copper, in particular, on the spot market remained weak in March, with some rebound only expected in the second quarter. Overall, positioning in the base metals has been very light, with the market lacking conviction and uncertainties growing. However, major observers point to the fact that, assuming that the global growth recovery continues and, most crucially, that signs of improving demand appear in China, this could encourage a return of a risk appetite to establish long positions, particularly in the case of markets such as copper which are forecast to be in deficit.
Copper prices reported slower growth of 0.3% m-o-m, compared with 5% in the previous month, mainly on softer Chinese buying. The trade data indicated a combination of strength in import levels, set against soft physical market conditions. Net refined import levels rose by 12% m-o-m (and 170% y-o-y) to 375 kilo tonnes (kt) in February, the third-highest level ever. A firm rebound was also seen in scrap import levels. It is estimated that, taken in line with the build in the Shanghai Futures Exchange’s (SHFE’s) stocks over the period (84 kt) and the National Bureau of Statistics of China (NBS) refined production data, which indicated an output rise of 10% y-o-y to 437 kt. The basic implied apparent consumption for the month was 728 kt, which represented an increment of 47% y-o-y.
Aluminium prices decreased by 1.1% m-o-m in March, after a 3% rise in February. Despite the fact that Chinese imports for February increased by 57.5%, inventories at the SHFE remained high. The Chinese aluminium data for February revealed that, although there was oversupply, there were signs that the market was preparing for a pickup in demand. Nevertheless, the outlook for the aluminium markets seems to be encouraging, due to the slower pace inventory-build in the SHFE and at the LME. In the latter, aluminium stocks increased by 0.03% m-o-m in March, compared with a
a 1.8% gain in February.
Nickel prices rose by 8.5% m-o-m in March, compared with 2.7% in the previous month, mainly on rising stocks and ongoing ramp-ups of new projects that are expected to keep the market in surplus in the medium term. Chinese imports of the metal declined further in March. Refined nickel net imports plummeted by 71% in February, following the downward trend of the previous month. A combination of falling net refined nickel imports (31% y-o-y), the lowest level since May 2010, and a surge in refined exports, the highest since May last year, reflected the over-supply in the Chinese refined market, which was related to stock-builds in 2H11. This was reflected in the deterioration in Chinese nickel prices versus the LME, from December onwards.
Gold prices posted a loss of 4%, compared with a 5.4% gain in February, due to weaker investment demand and lower physical demand from China and India. In addition, the stream of positive macroeconomic data, especially the recovery in the US economy also contributed to the fall in gold prices.
Investment flows into commodities
Investment in commodities still rose in March, but at a slower pace, due to some mixed macroeconomic signals, especially slower growth in China and the pending problems in the Euro-zone, and despite the recovery in the US economy and some encouraging signals from Europe. It seems that the easing of investor interest in commodities in March was also related to some evidence about a softening of metal demand from China. Total open interest volume (OIV) in major commodity markets in the US went up by only 3% m-o-m to 8,378,057 contracts in March, compared with an 8% rise in the previous month.
Total net length speculative positions rose more slowly, by 17.4% m-o-m, to 960,156 contracts in March, compared with 47% the previous month, and this was driven by weaker growth in long positions (7.6% versus 15.8%) and a drop (1.9%) in shorts. Agriculture was the major beneficiary of the modest increase in tactical investment in March.
Agricultural OIV rose by a further 6% m-o-m to 1,571,085 contracts in March, as against 7.9% a month earlier. Money managers’ net long positions in agricultural markets posted a 59% gain to 594,855 contracts, compared with 49% the previous month, on a 19% rise in longs and a further 15% drop in shorts. HH natural gas OIV fell heavily by 1% m-o-m to 1,229,610 contracts in March, after rising by 11% in February. Tactical net length positions also dropped steeply, by 39.7%, compared with a 21.8% gain a month earlier.
Copper OIV declined by 4.7% m-o-m to 152,535 contracts in March, after gaining
18.6% the previous month. Net money manager positions increased by 6.8% to
14,918 contracts, after a massive 357.6% rise in February, which had followed a strong decline in January this year.
Gold OIV also reversed the positive trend in February (6% m-o-m), declining by 3.8% to 433,478 contracts in March. A similar trend was seen in strategic investments in gold, which posted a 20% decline to 128,160 contracts, following a 39% rise the previous month. Speculative shorts’ growth rose by 8.6%, while longs reported significantly lower growth of 7.9% in March, compared with around 33% in February.
