Trends in selected commodity markets
In January 2013, the World Bank energy price index rebounded by 3.5% m-o-m
mainly on a 3.9% m-o-m rise in petroleum prices while the non-energy price index
showed a small increase of 0.8% m-o-m compared to a 1% m-o-m fall in the previous
month. Agriculture prices declined by 0.6% m-o-m with food prices being down 0.97%
m-o-m compared to a 1.2% decline in December. Base metal prices increased at a
slower pace of 0.5% m-o-m than in the previous month when prices as a whole for the
complex rose by 4.8% m-o-m. The price of gold also fell by 0.8% m-o-m compared to a
2% m-o-m drop in December.
Commodity prices, especially base metals, benefited somewhat from an improvement
in the stream of macroeconomic data, especially on China and the US economy.
Nevertheless, macroeconomic uncertainties still remain. Investors continued showing
caution about commodity risk although OIV in the major US markets rebounded in
January compared to a decrease in last December.
The base metal price recovery in the last weeks of November and December resulted
mainly from short-covering, and the outlook for 2012 relied especially on sustained
economic and domestic demand growth in China. So far, base metal fundamentals
have shown little sign of strengthening.
The Henry Hub (HH) natural gas price index shows no growth in January which
compares favourably to a 5% m-o-m drop in the previous month. The effects of normal
winter weather and weak fundamentals, in combination with high inventories, were
partly offset by cold weather in the West, which resulted in a significant drop in
production.
The expected positive impact of the retirement of coal-fired generation on natural gas
demand is not likely to materialise until 2015. Fundamentals are expected to weaken
until production starts to decrease by the second half of this year.
The agricultural price index declined by 0.6% m-o-m with food prices down by 1.3%
m-o-m in January. Wheat prices dropped by 3.6% m-o-m despite lower-than-expected
reported plantings of US winter wheat according to the USDA’s 11 January report.
Wheat prices in the US were also affected by lower imports from China in December.
Corn prices were down 1.8% m-o-m compared to a 4% drop in the previous month, due
to a larger US corn crop and increased production for South America for 2012-13,
combined with lower imports from China.
Sugar prices declined further by 2.3% m-o-m compared to a 0.6% fall in December,
due to a surplus in global markets. There has been record production of sugar in Brazil
and good production in China, which has resulted in lower sugar imports to China in
December.
The World Bank’s base metal price index declined by 0.5% m-o-m in January
compared to a 4.8% m-o-m gain in December. The slower increase in base metal
prices took place across the complex: aluminium and zinc prices declined by 2% and
0.2% m-o-m, respectively, in January. Copper prices rose by 1% m-o-m compared to a
3.3% gain in December; lead prices increased by 2.4% m-o-m in January. Nickel was
up 0.14% compared to a 7% m-o-m gain in the previous month. The International
Nickel Study Group estimated an important surplus of refined nickel for 2012 compared
to the previous year.
Encouraging factors for base metals, particularly copper and zinc, have been the
improving sentiment regarding Chinese demand and the expected recovery in the US
housing market in 2013-14. Nevertheless, this and other positive macroeconomic
factors were partly offset by a softening trend in most base metal imports from China
and rising inventories. London Metal Exchange (LME) stocks are increasing for metals
such as copper, nickel and tin. Weak speculative activity also prevailed for most of
January. However, in the last week of January, sustained optimism about global
growth, particularly in China and the US, has led to short covering across base metals
in what is becoming a risk-on environment. This recent rally for base metals was driven
more by short covering by commodity trading advisors than discretionary investment or
corporate flows. Nevertheless, a further move higher is possible in the short-term if the macroeconomic environment remains positive. Short covering due to the possible
impact on the commodity markets of changes in the interest rate regime may also take
place in February.
There is an outlook for surpluses in 2013 across all base metals, except tin. Chinese
base metal imports for December continued to point to weak copper demand which is
coherent with rising estimated bonded warehouse stocks.
Gold prices posted a slower decline of 0.8% m-o-m compared to a 2% m-o-m fall in
December. Unfavourable factors were a better macroeconomic outlook, weaker Asian
demand and a decline in ETP buying. Speculative positioning also decreased by 18.7%
due to lack of conviction in gold.
Investment flows into commodities
A rebound in the total open interest volume (OIV) in major commodity markets in the
US declined by 2.1% m-o-m to 8,171,868 contracts in January compared to 3.1%
m-o-m in December. Most of the market groups posted a gain in OIV.
Total net length speculative positions in commodities declined by 8.1% m-o-m to
636,911 contracts in January compared to an 11% drop in the previous month. Long
positions declined by 0.2% m-o-m to 1,621,478 contracts but shorts gained 5.7%
m-o-m to 984,567contracts.
Agricultural OIV was 3.3% up m-o-m to 4,280,611 contracts in January compared to a
4.4% loss in December. Strategic net long positions in agricultural markets declined
further by 21.6% m-o-m to 335,480 contracts in January. This was driven by a 3.3%
m-o-m decline to 872,574 contracts in January, while short positions increased further
by 13.2% m-o-m to 537,094 contracts. The grains complex, in particular, reported a
retrieve in speculative activity.
HH natural gas OIV increased by 0.9% m-o-m to 1,167,912 contracts in January
compared with a 0.4% drop in the previous month. Money managers’ net length
declined 6.5% standing at minus 729,000 contracts from minus 68,459 contracts in
December.
Copper OIV rose 7.9% m-o-m to 160,582 contracts in January compared to a drop of
0.8% in the previous month. Strategic investments in copper rose to 18,209 contracts in
December from minus 741 contracts. Money managers’ net long positions decreased by
7.7% m-o-m to 16,805 contracts, but it is still at high levels considering the massive boost
in strategic investment in copper during the previous month. A 0.7% m-o-m increase in
shorts combined with a 3.5% decline in longs.
The gold OIV increased by 3.2% m-o-m to 445,291 contracts compared to a 7.2% drop
in the previous month. Strategic investments in gold fell by 18.7% to 88,212 contracts
in January compared to a 17.9% loss in December. Short positions increase by 31.5%
m-o-m to 29,006 contracts in January compared to a 93.5% gain in the previous month,
while longs retreated by 10.29% m-o-m to 117,218 contracts in January.
