Trends in selected commodity markets
In February, the World Bank’s energy price index rose by 2.2%, compared with a
3.5% rise the previous month, on higher petroleum and coal prices. The non-energy
price index fell by 0.31%, following a 0.73% gain January. Agriculture eased by
0.94%, after a 0.6% drop the earlier month, with food down by 0.21%, compared with a
0.97% loss in January. The base metal price index rose again slightly, by 0.5%, while
gold prices dropped by 2.4%, which was more than the 0.8% fall one month ago.
Several commodity markets felt the negative impact of some loss of momentum due to
still-pending macroeconomic uncertainties, such as renewed concern about fiscal
issues in the US, sovereign debt growth in the Euro-zone and the Italian election, as
well as decelerated global industrial production. The US dollar’s strengthening also
worked against commodity prices in February. The lack of confidence among investors
continued too.
Other relevant issues for commodity markets were fear over Chinese property
tightening, concern about broader economic tightening and a weaker-than-expected
purchasing managers index (PMI), owing largely to Chinese New Year in midFebruary. There was a correction in stock indices in developing countries over
February too.
The Henry Hub (HH) natural gas price index was 0.5% down in February, following no
change in the previous month (versus 0.0%), due to warmer-than-normal winter
weather and weak fundamentals, especially high production. In February, US natural
gas prices dropped.
The expected positive impact of the retirement of coal-fired generation on natural gas
demand is not likely to materialise until 2015. Fundamentals are likely to weaken until
production starts to decrease by the second half of this year.
The agricultural price index eased by 0.94%, compared with a 0.6% decline the
previous month, with food down by 0.21%, compared with a 0.97% drop in January.
Lower speculative activity was also posted in several agricultural markets, as a high
level of production for 2013 and the dollar’s appreciation weighed on several
agricultural markets.
The wheat price dropped by a further 4.9% in February, following a 3.6% fall in
January, partly on an expected large level of production. According to Bloomberg,
India, the world’s second-biggest wheat producer, is considering exporting wheat from
state inventories.
The corn price fell by 0.1% in February, which compared favourably with a 1.8% drop
the previous month. The US Department of Agriculture projected lower exports,
increased non-ethanol food, seed and industrial use, and increased ending stocks for
the “new crop” 2012/13 marketing year. This combined with higher imports from China
on a monthly basis for January. Nevertheless, corn imports from China were lower on a
yearly basis.
The World Bank’s base metal price index rose by 0.5% in February, just as it had in
January. Copper prices rose by 0.2%, compared with a 1% rise in January. Lead
prices rose by 1.4%, which was lower than a 2.4% rise the previous month. Nickel and
zinc prices rose by 1.2% and 4.7% respectively. Finally, aluminium prices saw a slight
rise of 0.8%, compared with a previous fall of 2.3%, while a 7% monthly gain in tin
prices for January turned into a 1.4% decline in February.
The price performance of commodity markets resulted largely from an important sell-off
in base metals consistent with a broader risk-off across commodity and equity markets
globally. This was due to fears about Chinese property tightening, concern over
broader economic tightening and a weaker than-expected PMI, owing largely to the
Chinese New Year in mid-February. It seems that we are watching over the transition
to a more stable growth model in China. Imports of major base metals from China were
down significantly, compared with the year-ago level, in January. High stocks in copper
and aluminium continued being reported in China during February.
In the second week of February, base metal prices remained in a holding pattern, as
markets awaited confirmation — or not — that the return of the Chinese from the Lunar
New Year holiday would herald an uptick in demand. There was a pocket of tightness
in aluminium time-spreads, but this was not supported by underlying fundamentals,
since demand remained weak in China.
A positive piece of news recently from China was the release of the details of China’s
central budget and economic targets for 2013, and this suggests a moderate increase
in infrastructure outlays, which points to our base-case scenario of a steady, but
modest pick-up in commodity demand this year.
Gold prices tumbled by a further 2.4% in February, compared with a 0.8% drop the
previous month, worsening to seven-month lows. Some indications of an improvement
in physical demand were outpaced by weaker investment demand, with longer-term
investor interest also posting increasing signs of waning.
Investment flows into commodities
The total open interest volume (OIV) in major commodity markets in the US
continued the rebound that started in January and increased by 5.2% to
8,599,214 contracts in February. Except for precious metals, most of the market groups
reported a rise in OIV.
Total net length speculative positions in commodities plummeted by 18.7% to
518,334 contracts in February, compared with a more modest 8% decline the previous
month. While long positions rose by 2.9% to 1,668,417 contracts in February, short
positions increased by 16.8% to 1,150,083 contracts.
Agricultural OIV increased by a further 6.2% to 4,548,802 contracts in February,
compared with a 3% rise the previous month. Money managers’ net long positions in
agricultural markets decreased by 12.6% to 293,093 contracts in February, following a
21.6% loss in January. This was the result of a 19.5% rise in short positions, compared
with a 7% gain in long positions.
HH natural gas’s OIV increased by 2.7% to 1,199,108 contracts in February, after a
0.92% rise the previous month. Strategic investment increased by 5% to -69,246
contracts in February, compared with -72,900 contracts in January.
Copper’s OIV gained 8.6% to 174,484 contracts in February, following a 7.9% rise in
January. Strategic investments in copper tumbled by 25.6% to 12,500 in February. And,
while short positions jumped by 36.8%, longs rose by 7.5%.
Gold’s OIV decreased by 2.3% to 435,054 contracts in February, after a 3.2% rise the
previous month. Strategic investments in gold fell by a further 32.3% to
59,698 contracts in February, following a 18.7% drop the previous month. An 81.5%
jump in short positions combined with a 4% decline in long positions.
