In June, the average price for energy commodities declined, though still rising on
average for the second quarter. Non-energy commodities dropped due to a
broad-based fall in base metal prices, while agricultural prices advanced slightly.
Precious metals prices declined on an improvement in economic activity in the
US, which made room for the US Federal Reserve (Fed) to increase interest rates.
Trends in selected commodity markets
Continuing improvement in the US labour market translated into higher odds for an
increase in interest rates, thereby raising support for the US dollar during the month,
while lowering the attractiveness of precious metals. Meanwhile, manufacturing
prospects as shown by Purchasing Manager Indices (PMIs) improved in the US (the
Institute of Supply Management PMI was at 53.5 versus 52.8 in May) and the
Euro-zone (52.5 versus 52.2 in May), while declining in Japan (50.0 from 50.9 in May).
In China, the world’s largest metal producer and consumer, the PMI slightly improved
(49.4 versus 49.2 in May), but still remained in contraction territory at less than
50 points for the fourth consecutive month.
In fact, concerns over the manufacturing sector in both Japan and China put pressure
on base metal prices. Moreover, slower imports for selected metals to China and the
sell-off experienced in the stock market of the country at the end of the month also
added downward pressure to metal prices. However, the real estate market in China
appears to be further stabilizing; in May new home prices decreased in 43 of the
70 largest cities versus 48 of 70 in April, while prices advanced in 20 of them according
to the National Bureau of Statistics. This could provide support for metal prices, should
the recovery trend continue. Meanwhile, iron ore continued its rebound for the second
consecutive month, but gains were capped at the end of the month on continuing
oversupply and a decline of 2.1% in world steel output for the month of May, according
to the Word Steel Association.
Agricultural prices were mainly affected by weather-related events, higher demand and
a stronger US dollar. In the US, the Department of Agriculture reported a decline in
crop conditions for soybeans and maize in the current year, due to wet conditions.
Moreover, quarterly stocks estimations reported at the end of June were below market
expectations, which triggered price rallies. Sugar prices were down sharply on
continuing weakness in the Brazilian real and the expectation of increasing exports
from India. Meanwhile, in the group of beverages, cocoa prices continued to rise for the
second consecutive month due to crop damage in Ghana, the second-largest
Energy prices retreated for the first time in June as the average prices of crude oil,
natural gas and coal were down. Natural gas prices declined in the US as working gas
inventory levels continue to run significantly higher (35%) than a year ago – according
to the Energy Information Agency (EIA). Meanwhile in Europe, average import prices
remained broadly stable in spite of EU-28 inventories, which were at 47.8% of capacity
at the end of the month versus around 70% last year, according to Gas Infrastructure
Europe, reflecting soft demand.
In the short term, further recoveries in China’s property market may provide support to
the group of metals, however a recent drop in the stock market and continuing softness
in manufacturing activity could drag on prices. In the case of agricultural commodities, support may be provided by the meteorological phenomenon “El Ni?o”, though it could
also further pressure natural gas prices in the US, if it results in a cooler-than-average
Average energy prices decreased by 1.9% m-o-m, mainly due to a 1.9% decrease in
the price of crude. Natural gas prices decreased in the US by 2.4% m-o-m, while
average import prices in Europe advanced slightly by 0.3%.
Agricultural prices increased by 0.5% due to a 0.7% advance in food prices, while
beverages (cocoa, coffee and tea) and raw material (timber, cotton, rubber and
tobacco) prices increased by 2.7% and 0.2%, respectively. Prices in the soy complex
increased, with soybeans, soybean oil and soybean meal up by 4.9%, 1.9% and 4.9%
m-o-m. Meanwhile, cocoa prices increased by 7.9% m-o-m.
Average base metal prices decreased sharply by 6.7%, with declines among all group
components. Aluminium, copper and lead experienced the largest declines in 2015,
down by 6.4%, 7.4% and 8.1%, respectively. Meanwhile, average iron ore prices
continued to rebound, moving up by 5.0%. This trend started the previous month,
though gains reversed at the end of this month.
In the group of precious metals, gold prices saw a decrease of 1.4% on the prospect
of increasing interest rates in the US, while silver prices declined by 4.5%
In June, the Henry Hub natural gas price decreased after storage build-ups were
broadly in-line with market expectations during the month. The average price was down
by 7˘ or 2.4% to $2.77 per million British thermal units (mmbtu) after trading at an
average of $2.84/mmbtu the previous month.
The EIA said utilities put 69 billion cubic feet (Bcf) of gas into storage during the week
ending 26 June. This was slightly above market expectations of a 70 Bcf increase.
Total gas in storage stood at 2,577 Bcf, which was 35% higher than the previous year
at the same time and 1.0% higher than the previous five-year average. One month ago
it was also 1% below that average. The EIA noted that temperatures were warmer both
than the previous year and the 30-year average during the reported week.
Investment flows into commodities
Open interest volume (OIV) in selected US commodity markets increased in June for
natural gas, agriculture and precious metals, while it declined for crude oil, copper and
livestock. Meanwhile, speculative net length positions advanced in agriculture, with a
reduction in net short positions, but declined for the other reported groups.
Agriculture’s OIV advanced 2.7% m-o-m to 4,998,499 contracts in June. Meanwhile,
money managers decreased their net short positions by 50.5% to 122,224 lots, mainly
due to lower reported stocks of maize and soybeans and adverse weather conditions
during the month.
Henry Hub’s natural gas OIV increased by 2.6% m-o-m to 1,037,265 contracts in
June. Money managers increased their net short positions by 51.9% to reach to
146,614 lots; US Energy Information Administration (EIA) reports indicate that natural
gas production has consistently increased in spite of low prices.
Copper’s OIV decreased by 0.7% m-o-m to 172,961 contracts in June. Money
managers switched to a bearish net short position of 9,292 lots from a net long position
of 34,595 contracts the previous month on concerns about slowing demand in China.
Precious metals OIV increased by 4.1% m-o-m to 610,086 contracts in June. Money
managers decreased their net long positions by 43.2% to 43,703 lots on the prospect
of higher real interest rates in the US after stronger performance of its economy in the