Trends in selected commodity markets
The declining trend in commodities in April has continued, as was confirmed by the
latest World Bank data. Prices fell across the board, with the exception of the Henry
Hub gas prices. This continues the decoupling from the equity markets, which largely
traded along the same lines with the commodity market in the past years. It remains to
be seen if it will catch up again as expected, but for the time being the growth in
equities — which reached new highs — is very different from the most recent
developments in the commodities area.
Base and precious metals have seen the largest declines. Base metals have fallen by
4.9% m-o-m, with an above-average decline in copper, which is usually a good
indicator for future economic activity. This decline in prices has also been triggered by
slowing momentum in all the major emerging economies, particularly China, that have
been the marginal buyers of these commodities for some years.
Another reason for the price decline might be the fact that inflation in the larger
developed economies seems to be largely contained and investments in commodities
as a hedge for inflation is currently not necessary.
Finally, the rise in the US dollar over the past months has added to the price decline,
given the usual correlation of inverse US dollar price trends and commodity prices.
Contrary to large declines in most of the major commodities over the last two months,
the Henry Hub (HH) natural gas price index again gained 9.1% in April, for the
second straight month, but remained well below the 15% rise posted in March. During
the latter part of the month, for the first time in nearly 10 weeks, the HH price index slid
nearly 6% amid moderating weather forecasts, a build in inventories and tapering
spring demand. It hit a 21-month high of $4.429/mmbtu in the middle of the month as
cold Midwest US weather forecasts and a slide in inventories to below-normal levels
helped drive prices to recent record highs.
The World Bank agricultural price index fell by 2.7% from last month and minus
9.3% from a year ago. After having traded sideways in March, the grains declined in
April by a significant level, 5.1%, pushing down the average price for this year. With all
other issues considered secondary, the market remains focused on the upcoming US
corn and soybean planting season, which will doubtless set the scene for this year’s
grain market and probably also affect sentiment across the entire agricultural
commodity sector. So far, wet weather in the US Midwest threatened to exacerbate
already significant planting delays. The wheat price dropped by a further 0.5% in April,
after falling 2.9% in March, partly due to an expected high production level.
Investment flows into commodities
The total open interest volume (OIV) in major commodity markets in the US
increased by over 2.4% m-o-m, for the fourth consecutive month, to 8.9 mn contracts in
April, adding to the 1.2% rise in February. The growth was mainly attributed to higher
OIV in natural gas, copper and crude oil, while the remaining commodities’ OIV thinned
m-o-m.
Total net length speculative positions in commodities decreased further by 2.3%
m-o-m to 455,156 contracts in April, on top of the 10.1% drop the previous month. The
data reflected significant bearish sentiments in the agricultural and livestock
commodities markets, while other markets were stable to very bullish, as in the case of
natural gas.
Agricultural OIV fell again by 1.1% m-o-m to 4,426,284 contracts in April, the same as
in March. Money managers’ net long positions in agriculture dropped by a sharp 41.6%.
Since August, agricultural net length dropped more than 80%. The net length reached
828,633 contracts in August, dropping to only 158,729 lots in April as prices continue to
fall amid weak demand and improving global supply outlook.
Henry Hub natural gas OIV increased by a hefty 16.8% m-o-m to 1,535,113 contracts
in April as bullish market sentiment continued. This is in addition to the 9.6% rise in
March. For the eleventh week in a row, speculative net length positions increased
three-fold to their highest on record at 82,125 contracts.
Copper’s OIV increased 7.8% m-o-m to 177,693 contracts in April, reversing a March
drop of 5.5%. However the group of investors increased their short positions, or bearish
bets, by almost 11% to 26,025 contracts, in line with the fall of the price of copper futures
by 5.4%.
Gold’s OIV decreased by 4.3% m-o-m to 416,587 contracts in April. Strategic
investments in gold rose by 3.7% m-o-m to 53,371 contracts in April compared to a
decrease of 13.6% in March. Bullish bets increased in gold futures and options as the
price of the precious metal rallied 4.5% during the last week of the month. However,
gold's net length remains near its weakest level since December 2008.
