Commodity prices generally advanced in April, with the energy group supported
by a price increase in crude oil in anticipation of a supply freeze and output
disruptions in some countries. In the non-energy group, agricultural prices
advanced on strong performance by oils and oilseeds, while base metals were
mixed, with increases in aluminium and decreases in copper. Precious metals
advanced due to increases in platinum and silver.
Trends in selected commodity markets
A further recovery in crude oil prices continued to support commodity market sentiment
in April, albeit at a lower rate than during the previous month. Meanwhile, commodity
prices also had the support of a weakening US dollar in anticipation of a more gradual
path of interest rate increases by the US Federal Reserve. This, in fact, has supported
precious metal prices since the beginning of the year. Concurrently, manufacturing
prospects weakened slightly in China, the largest consumer, as shown by the
Purchasing Managers’ Index (PMI) figure of 49.4, versus 49.7 from the previous month,
while in the US, the Institute of Supply Management PMI declined to 50.8 in April
versus 51.8 the previous month.
Metals prices were mixed, though they were supported by a pick-up in industrial
output in China, which increased in March, by 6.8% vs 5.4% y-o-y the previous month.
Moreover, gains in home prices accelerated in March, with the price of new homes
increasing in 62 of the 70 largest cities in China, according to the National Bureau of
Statistics. Furthermore, although world steel output declined by 0.5% in March, it
actually increased in China by 2.9% y-o-y — the first increase of 2016, according to the
World Steel Association. Steel prices and iron ore prices have advanced in response.
However, a slight weakening in Chinese manufacturing prospects weighed on copper
prices.
Agricultural prices increased mainly due to strong gains in oilseeds and vegetable
oils, due to the impact of El Ni?o. Soybean prices were supported by torrential rains in
Argentina that could damage the current crop. At the same time, palm oil prices
continued to advance, due to expected lower output in Southeast Asia as a result of the
El Ni?o-induced drought. Corn prices also advanced due to fears of crop damage from
drought in Brazil. However, the US Department of Agriculture continued to forecast
plentiful supplies of corn, soybeans and wheat, which could limit further price
appreciation.
Energy price gains were led by crude oil prices, which rose for the third consecutive
month on the expectation of a supply freeze and disruptions by key suppliers. Natural
gas showed mixed trends in the US and Europe, with some rebound in prices in the US
on slightly lower-than-expected inventory buildups at the beginning of the injection
season. In Europe, prices declined mainly on the effect of indexing. Inventories in
Europe were 35% higher at the end of April than a year ago, according to data from
Gas Infrastructure Europe.
Average energy prices in April increased by 8.0% m-o-m due to a 9.1% increase in
crude oil prices. Natural gas prices increased in the US by 12% m-o-m, while average
prices in Europe declined by 3.1%.
Agricultural prices advanced by 2.8% due to increases in average food, beverage
and raw material prices by 2.9%, 1.5% and 3.4%, respectively. Soybeans, soy oil, soy
meal and palm oil led the increase in food prices, advancing by 4.8%, 4.6%, 8.9% and
5.4%, respectively.
Average base metal prices increased by 0.4%, with mixed price movements.
Aluminum advanced by 2.6%. Copper prices were down by 1.6%. Average iron ore
prices jumped by 8.9%, following a rally in steel prices.
In the group of precious metals, gold prices declined slightly by 0.2%, while silver and
platinum prices rose by 5.8% and 2.7% m-o-m, respectively.
In April, the Henry Hub natural gas index increased. The average price was up 20¢,
or 11.9%, to $1.90 per million British thermal units (mmbtu) after trading at an average
of $1.70/mmbtu in the previous month.
The US EIA said utilities added 68 billion cubic feet (bcf) of gas from storage during
the week ending 29 April. This was broadly in line with the median market expectation
of a 67 bcf decrease; however inventories are close to a record high for this time of the
year – the last peak was registered in 2012. Total working gas in storage stood at
2,625 bcf, or 48.8% higher than at the same time the previous year and 46.7% higher
than the previous five-year average. The EIA noted that temperatures during the
reported week were “close to seasonal norms in most of the lower 48 states”.
Investment flows into commodities
Open interest volume (OIV) increased in April for select US commodity markets such
as agriculture, copper, natural gas, livestock and precious metals, while decreasing for
crude oil. Meanwhile, monthly average speculative net length positions for selected
commodity groups increased, with the exception of copper.
Agriculture’s OIV decreased by 5.5% to 5,197,819 contracts in April. Meanwhile,
money managers changed their stance to a combined net long position of 220,897 lots,
largely because of increasing net length in corn, the soy complex and sugar.
Henry Hub’s natural gas OIV increased by 4.4% m-o-m to 1,12,0471 contracts in
April. Money managers decreased their net short positions by 54% to reach 64,784
lots, the least bearish figure since February 2015.
Copper’s OIV increased by 10.9% m-o-m to 192,103 contracts in April. Money
managers decreased their net long position almost completely to 1,630 lots on
declining momentum in the metals rally of the last three months.
Precious metals’ OIV advanced by 4.5% m-o-m to 686,451 contracts in April. Money
managers increased their net long positions by 25% due to the expectation of a gradual
interest rate increase in the US.
