Average commodity prices declined in November, with a retreat seen in all major
commodity groups. In the group of energy commodities, prices were down due
to the drops in crude oil and natural gas prices. In the group of non-energy
commodities, metals experienced a broad-based drop on the weakness of
manufacturing activity in China while agriculture prices were also generally
down. Precious metals showed their largest drop since 2013 on firmer
expectations of interest rate hikes in the US.
Trends in selected commodity markets
Commodities were under pressure from the advancing US dollar on the increased
market expectation for an interest rate hike in the US after continuing improvement in
the labour market and ongoing economic expansion. This, in fact, increased medium
and long-term real interest rate expectations, which triggered the largest monthly
decline in precious metals since April 2013.
Meanwhile, industrial metals experienced large declines under the pressure of
weakening manufacturing prospects in China, the largest metal consumer and
producer, albeit at a lower rate than the previous month, with manufacturing PMI at
48.6 versus 48.3 in that country. Readings of US manufacturing activity also pointed to
contraction for the first time since November 2012, with the Institute of Supply
Management Manufacturing PMI at 48.6, versus 50.1 the previous month. Aluminum
showed the smallest price declines among base metals, gaining some support from the announcement of output cuts by Alcoa, which could withdraw 500,000 metric tonnes
from the market. Iron ore suffered steep losses on continuing weakness in steel output,
which was down by 3.1% y-o-y in China and at a world level in October, according to
the World Steel Association and the capacity expansions of major producing
companies announced the previous month.
Agricultural prices were down, mainly due to decreases in the prices of food and raw
materials, while the US dollar appreciation added pressure to prices. During the month,
the US Department of Agriculture increased its estimations of global ending stocks for
corn – largely on higher estimations for China and the US, which, in conjunction with
lower fuel cost, impacted prices. Meanwhile, it increased its forecast of soybean ending
stocks in the US on record production, which weakened prices of soybeans, soy oil and
soymeal. Sugar prices increased on data from the Brazil sugar industry association
UNICA, showing lower output than the previous year, due to larger attractiveness of
ethanol production.
Energy prices retreated with drops in crude oil on persistent oversupply, while natural
gas prices dropped both in Europe and the US. In the US, natural gas inventories
reached record levels of 4.009 tcf during week ending 20 November, while at the same
time, temperatures continue to be warmer than average due to the effect of El Ni?o. In
Europe, spot prices were negatively affected by warmer-than-average weather, while
natural gas EU-28 inventories were at 77% of capacity at the end of November versus
83% of capacity at the end of October, according to Gas Infrastructure Europe.
Average energy prices declined by 7.5% on top of a 8.2% decline in crude oil. Natural
gas prices declined in the US by 9.3% m-o-m, while average import prices in Europe
were down by 3.6%.
Agricultural prices declined by 1.3%, with drops of 1.8% and 0.8%, respectively, in the
groups of food and raw materials (timber, cotton, rubber and tobacco), while prices
advanced by 0.8% in beverages (cocoa, coffee and tea). Maize and soymeal
decreased by 3.0% and 8.9%, respectively. Meanwhile, sugar prices continued their
ascending trend, up by 4.3% on lower output in Brazil. In the group of raw materials,
natural rubber declined by 6.6%.
Average base metal prices declined by 6.5%, with declines among all group
components. Copper and nickel prices retreated by 8.0 and 10.5%, respectively, on
lower-than-expected demand from China. Meanwhile, average iron ore prices declined
by 11.3% m-o-m on continued oversupply.
Precious metals had their largest monthly drop since 2013, with gold prices declining
by 6.3% on average, pressured by the expectation of higher real interest rates in the
US. Meanwhile, silver and platinum prices declined sharply by 8.3% and 9.4% m-o-m,
respectively.
In November, the Henry Hub natural gas index decreased. The average price was
down 24¢, or 10.3%, to $2.08 per million British thermal units (mmbtu) after trading at
an average of $2.32/mmbtu the previous month.
The US Energy Information Administration (EIA) said utilities withdrew 53 billion cubic
feet (Bcf) of gas from storage during the week ending 27 November. This was slightly
higher than market expectations of an 49 Bcf decrease. Total working gas in storage
stood at 3,956 Bcf, which was 16% higher than at the same time in the previous year
and 7% higher than the previous five-year average. The EIA noted that temperatures
during the reported week were “close to normal”.
Investment flows into commodities
Open interest volume (OIV) increased in November for select US commodity markets
such as agriculture, crude oil, copper, natural gas and livestock, while it decreased for
precious metals. Meanwhile, speculative net length positions decreased for agriculture,
crude oil, copper, livestock and precious metals, while net short positions decreased for
natural gas.
Agriculture’s OIV increased by 3.5% m-o-m to 4,938,091 contracts in November.
Meanwhile, money managers increased their net long positions by 84.6% to
35,878 lots, largely because of decreases in net length positions of corn and the soy
complex.
Henry Hub’s natural gas OIV increased by 3.8% m-o-m to 1,009,800 contracts in
November. Money managers decreased their net short positions slightly, by 3.8%, to
reach 206,589 lots, but remained largely bearish on continuing expectations of warmerthan-
normal winter weather.
Copper’s OIV increased by 12.5% m-o-m to 179,696 contracts in November. Money
managers switched to a net short position of 20,092 lots from a net long position of
5,402 lots the previous month.
The precious metals’ OIV decreased by 2.9% m-o-m to 595,900 contracts in
November. Money managers’ net long positions decreased by 71% to 37,543 lots, with
a large decrease of net length in gold on the expectation of higher interest rates in the
US.
