Trends in selected commodity markets
In March, the World Bank’s energy price index dropped by 4.2%, compared with a
2.2% rise the previous month, on falling petroleum and coal prices. The non-energy
price index fell by 2.9% following a slight fall in February of 0.4%. Agriculture declined
by 1.1%, a similar decline as in the earlier month, with food down by 0.7%, compared
with a 0.2% loss in February. The base metal price index plunged by 5.8%, while gold
prices dropped by 2.1%
Global commodity markets were affected by the banking crisis in Cyprus, which caused
significant uncertainties in the global capital markets, 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.
The unemployment rate for Euro-zone countries increased to 12.0% in March, an
increase over last month and a record high. Additionally, the uncertain outcome of the
recent government elections in Italy has put future economic recovery and reforms into
question. In China, the February Purchasing Managers’ Index (PMI) unexpectedly
declined from January and is now just slightly above the dividing line indicating likely
expansion or contraction.
The Henry Hub (HH) natural gas price index was up 15% in March. The index rose
because high winter demand helped erode a huge gas storage surplus that hung over
the market and which had depressed prices since last spring. The reduction in gas
inventories came at a crucial time when stock levels were so high that there was almost
no more storage capacity.
The agricultural price index is at a current level of 184.16, down from 186.12 last
month and down from 195.55 one year ago. This is a change of minus 1.06% from last
month and minus 5.82% from a year ago. The grains sector continued to trade
sideways through March, leaving the average price largely unchanged so far this year.
With all other issues considered secondary, the market is focused on the upcoming US
corn and soybean planting season that will doubtless set the scene for this year’s grain
market and probably also affect sentiment across the entire agricultural commodity
sector. 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 4.1% in March, following a 3.6% drop in
February, partly on an expected large level of production. According to the latest
Agricultural Prices Report from the US Department of Agriculture (USDA), the
preliminary national average price received by farmers for all wheat in March was
$7.66 per bushel, down 31¢ from $7.97 the previous month but up 46¢ from $7.20 the
same month a year earlier.
The corn price dropped as bigger than expected US stockpiles and increased planting
signalled ample supplies. US corn inventories on 1 March totalled 5,399 billion bushels,
the Department of Agriculture said 28 March. While down from a year earlier, that’s still
above the 4,995 billion forecasts by analysts surveyed by Bloomberg News. Farmers
will plant 97,282 million acres this year, the most since 1936, the USDA said.
The World Bank’s base metal price index plummeted by 5.8% m-o-m in March
compared to a 0.5% fall in February. Copper prices dropped by 5.2% m-o-m in March
compared to a 0.2% rise in the earlier month. Aluminium prices plummeted by 7%
m-o-m in March compared to a 0.8% m-o-m rise in February. Nickel and zinc prices
reversed the gains in February declining by 5.5 % and 9.5%, respectively.
The price performance of base metals markets has been largely associated with global
slower economic growth, rising domestic production and relatively high inventories.
This will likely lead to China’s commodity import of base metals demand at relatively
modest levels for 2013. Industrial metal imports from China were lower across the base
metal complex.
China Shanghai Futures Exchange (SHFE) and bonded stock draws, rising bonded
premia and Cyprus-driven concerns over European banking stability all weighed on
declining base metal prices. At a global level, fundamentals are depressed and a
production cut seems to be necessary in several base metal markets. In the case of
aluminium, the recent price fall, high global inventories and an outlook for a sustained
surplus is putting pressure on both Chinese and ex-Chinese producers to cut output.
Around the second half of March, more recent supply cuts in the aluminium market
have moderated the expected 2013 surplus. Nevertheless, recent news from the CRU North American Aluminium Trends Conference in Miami point to the fact that US
aluminium consumption is indeed gaining positive traction with headline trends in end
demand.
The copper market was strongly impacted by Cyprus-driven concerns over European
banking stability, as well as fears over the outlook for Chinese demand and a recent
LME stock increase. Comex speculative short positions climbed to record highs by
Friday of the week ending 22 March. There was an especially strong decline in copper
net imports from China (minus 53% y-o-y). Refinery output rose as a result. With
bonded copper stocks equivalent to more than four months of refined imports at current
rates, it is expected that demand levels for copper imports will be sharply below 2012
levels for most of 1H2013.
Finally, as in other commodities, base metal prices have been negatively affected by
lower investor confidence due to events in Europe and upside potential will be limited
until risk aversion tactics have receded.
Gold prices dropped by 2.1% m-o-m in March compared to a 2.6% drop in February.
Gold prices had some initial rebound safe-haven bids following events in Cyprus but
this was short-lived. It is expected that prices will remain range-bound, finding support
from the physical market and with the central bank buying on the downside in the nearterm.
But the absence of a catalyst event for significant upward momentum does not
favour gold prices.
Investment flows into commodities
The total open interest volume (OIV) in major commodity markets in the US reported
slower growth of 1.2% m-o-m to 8,703,068 contracts in March compared to a 5.2% rise
in February. Except for crude oil, most of the market groups saw lower OIV growth in
March compared to last February. Gold markets saw a slight recovery.
Total net length speculative positions in commodities decreased by 10.1% m-o-m to
465,952 contracts in March compared to a 18.7% drop in the previous month. The
result was essentially due to a 6.7% m-o-m increase in March compared to a rise of
16.8% in February while longs experienced lower growth than in the previous month.
Agricultural OIV fell by 1.65% m-o-m to 4,473,724 contracts in March reversing the
positive trend of 6.3% in February. Money managers’ net long positions in agricultural
markets decreased by 7.21% m-o-m to in March compared to a 12.6% drop in
February. This was the result of a 5.2% m-o-m rise in shorts compared to a 1.2%
m-o-m in longs, which represented a substantially slower growth compared to
February.
Henry Hub natural gas’s OIV increased by 9.6% m-o-m to 1,314,402 contracts in
March compared to a 2.7% rise in February. Strategic investment increased to
18,757 contracts in March from minus 69,246 contracts in February led by a rebound in
prices.
Copper’s OIV lost 5.5% m-o-m to 164,895 contracts in March compared to a 8.6% rise in
February. Strategic investments in copper declined to minus 22,225 contracts in March
from 12,500 in February.
Gold’s OIV increased maginally by 0.03% m-o-m to 435,169 contracts in March.
Strategic investments in gold fell by 13.6% m-o-m to 51,552 contracts in March
compared to 32.3% in February. Shorts increased by 17.4% while longs rose by 0.9%
in the current month.
