Average commodity prices declined in October, with a drop in energy commodities due to falling crude oil prices. Non-energy commodities declined moderately, mainly due to weakness in base metals, while agricultural prices
stabilized as some group components recovered due to harvest delays. Precious metals declined on expectations that monetary policy would normalize in the US.
Trends in selected commodity markets
The ongoing strengthening of the US dollar, on top of divergent monetary policies among major developed economies, has continued to pressure commodities during the month. Some minor improvements in manufacturing prospects were registered in China, where the manufacturing PMI was 50.4 versus 50.2 in the previous month, and
the Eurozone, where the manufacturing PMI was 50.6 versus 50.3 a month earlier. Meanwhile, in the US, the ISM PMI index was 59.0 versus 56.6 in the previous month, suggesting strong manufacturing expansion in October. However, receding fears of supply disruptions and overcapacity have added to the weakness of both metals and
minerals. The prospects for interest rate hikes in the US also continued to pressure precious metals to multi-year lows. Meanwhile, some agricultural crops rebounded from four-year lows as adverse weather conditions and logistical constraints delayed harvests in both the US and Europe.
Agricultural commodities declined slightly, with different trends noticed among group
components. Corn and soybeans reversed their declining trend as the US Department
of Agriculture reported slower-than-average harvest progress, due to delays caused by
wet weather in producing regions and strong export demand caused by earlier low
prices. Weather conditions also negatively impacted the supply of corn and wheat in
Ukraine and Russia, providing additional support to prices of these crops. Meanwhile,
the continuation of severe drought in southern Brazil, together with an increase in
ethanol production in that country, supported sugar prices during the month.
The group of metals and minerals experienced a broad-based decline, with a
significant reversal in nickel which had been the best performer during the first half of
the year. This is in addition to an export ban that is still in place in major nickel exporter,
Indonesia. However, higher prices and greater shipments from the Philippines have
translated into higher inventories on the London Metals Exchange, thereby reversing
almost all the gains achieved earlier in the year. Copper prices continued their decline
as the re-start of exports of copper concentrates from Indonesia in September put
downward pressure on prices. This occurred despite improving manufacturing
prospects in China and a smaller decline in September’s average home prices,
according to China’s National Bureau of Statistics. Iron ore declined, but at a lower rate
than in previous months as major producing companies continued focusing on
increasing market share and reducing costs.
Energy prices declined notably during the month as crude oil experienced its largest
decline this year. Natural gas prices followed divergent patterns in Europe and the US.
In Europe, even though inventories increased to 94% of declared capacity, as reported
by Gas Infrastructure Europe, uncertainty about potential supply disruptions and the
beginning of cold temperatures increased average import prices during the month.
Meanwhile, in the US, prices decreased on warmer-than-average temperatures and
injections to storage were broadly in line with expectations during the month.
Among the factors that will require close attention in the near future are the impacts of
the end of the asset purchase programme in the US and the monetary stimulus in
Japan and the Euro-zone. The recently announced Chinese government infrastructure
stimulus programme could provide support to base metals, while weather-related
phenomena and increased crop exports from the US could lend support to agricultural
commodities.
Average energy prices decreased by 8.9% m-o-m in October, mainly due to a 10.2%
decrease m-o-m in crude oil due to soft fundamentals. Natural gas prices in the US
decreased on average by 3.7% m-o-m as strong natural gas production and milder
temperatures continue to help replenish inventories, while coal prices also declined on
average by 3.1% m-o-m.
Agricultural prices experienced only a marginal decline of 0.2%, with many group
components recovering during the second half of the month. Grains prices remained
stable on average, as harvest delays and strong export demand due to lower prices
provided support to corn and the soy complex. Moreover, sugar prices showed a strong
recovery on the persistence of a drought in some sugar cane producing regions of
Brazil and with a higher share of crops being diverted into ethanol production.
Base metals declined by 3.1% m-o-m, with declines among all group components.
Nickel experienced its sharpest drop of the year – down 12.3% -- on increasing supply
from the Philippines. Copper prices declined by 2% as Indonesia, a major exporter,
normalized its concentrate shipments and manufacturing readings from China
improved marginally during the month. Iron ore moderated its declining trend from the
previous months, dropping by 1.7% as major producers looked to gain the market
share of higher cost competitors.
The precious metals group declined by 2.3% in October. Average gold prices
decreased by 1.0% m-o-m after increasing in the middle of the month, as the positive
assessments for the US economy by the Federal Reserve suggested potential interest
rate increases in the 1H15. Meanwhile, silver prices continued the decline started in
August, down by 6.6% m-o-m.
In October, the Henry Hub natural gas price decreased as inventories increased
above market expectations in the last weeks of the traditional storage injection season.
However, milder temperatures and increasing shale gas supplies could extend the
injection season further into November. The price decreased 15¢, or 3.7%, to $3.77 per
million British thermal units (mmbtu), after trading at an average of $3.92/mmbtu the
previous month.
The US Energy Information Administration (EIA) said utilities put 91 billion cubic feet
(Bcf) of gas into storage during the week ending 31 October, 5 Bcf above the market
expectation of an 86 Bcf increase. Total gas in storage stands at 3,571 Bcf, which is
6.8% below the previous five-year average. Last month it was 11.4% below that
average. The EIA also reported “temperatures much warmer than [the] 30-year
average”, which provided support to above-average injections to storage.
Investment flows into commodities
The total open interest volume (OIV) in major US commodity markets slightly increased
to 8.5 million contracts in October, with the OIV declining for crude oil, natural gas and
livestock by 1.8%, 5.9% and 0.2%, respectively. Meanwhile copper, precious metals
and agriculture showed increases of 15.6%, 4.0% and 1.8%, respectively.
Total net length speculative positions in select commodities increased by 0.7%
m-o-m to 591,809 contracts in October, due to increases in net long positions on
agriculture, crude oil and livestock, and decreases in copper, natural gas and precious
metals.
Agricultural OIV was up 1.8% m-o-m to 4,629,760 contracts in October. Meanwhile,
money manager net long positions in agriculture increased by 14.0% to 190,383 lots,
reversing the declining trend observed since May, on harvest delays and strong export
demand for selected crops.
Henry Hub natural gas OIV decreased by 5.9% m-o-m to 911,894 contracts in
October. Money managers switched their stance to a net short position during the
month from a net length of 15,741 lots in October to a net short of 6,758 lots in
October, as injections into storage were seen as continuing into November.
Copper OIV increased by 15.6% m-o-m to 170,154 contracts in October. Money
managers doubled their net short position to 11,524 lots on receding fears of supply
disruptions and weak manufacturing numbers in China.
Gold’s OIV increased by 5.1% m-o-m to 400,852 contracts in October. Money
managers increased their net length in gold by 8.4% to 44,895 lots, as they increased
their bullish bets in anticipation of the Federal Reserve’s statement, GDP and
employment reports.
