Decreases in average energy commodity prices in July were led by falling crude
oil, while natural gas and coal prices advanced. In the group of non-energy
commodities, agricultural prices declined on expectation of ample supplies,
while base metals were supported by manufacturing expansion in China.
Average gold prices increased on expectations of lower interest rates in the US
in the aftermath of the Brexit referendum.
Trends in selected commodity markets
Specific commodity group developments continued to drive average prices in July.
Receding supply concerns on improved weather in the US were behind broad-based
retreats in food prices over the month. Meanwhile, metals were supported by the
expansion of the manufacturing sector in China, as shown by the July PMI reading of
50.6, up from 48.6 in June, and the continuing expansion – albeit at a slower pace ? of
the sector in the US and the Euro-zone, where PMIs were at 52.6 and 52.0 in July,
respectively, versus 53.2 and 52.8 in the previous month. Average gold prices showed
a steep jump in the aftermath of the Brexit referendum results, as market expectations
for interest rate hikes by the US Federal Reserve during the year were diminished.
Agricultural prices declined during the month, as improving weather conditions in the
US for corn and soy growers supported current expectations of another bumper crop.
In addition, reports by the US Department of Agriculture showing larger planted
acreage than previously estimated for US corn, wheat and soybeans, and larger stocks
at the beginning of June versus a year ago - corn, wheat and soybeans stocks were up
by 6%, 30% and 39% y-o-y respectively, put significant pressure on prices. Meanwhile,
coffee prices advanced on the impact of a transport strike in Colombia and potential
crop damage in Brazil due to frost. In the raw materials group, cotton prices jumped on
diminished expectations for the crop in India.
Base metal prices advanced, supported by an expansion in manufacturing activity in
China, the US and the Eurozone. Further support to metal prices was provided by
continuing recovery in the property market of China, were prices of newly constructed
residential buildings increased in 55 of the 70 largest cities, and in 57 of them, prices
are already higher than a year ago, according to data for the month of June from the
National Bureau of Statistics. Nickel prices jumped by close to 15% due to the
suspension of the operation of seven nickel mines on environmental grounds by the
new government of the Philippines, while further review of other mining operations is
expected. Exports from the Philippines to China have been used as a substitute for
Indonesian nickel ore exports that were banned in order to promote the construction of
smelting facilities in the country. Meanwhile, iron ore and steel prices advanced. World
steel output was stable y-o-y in June, but China continues to increase output by 1.7%
y-o-y, which now accounts for more than half of global output, according to the World
Steel Association.
Energy prices decreased on average in July, due to a drop in crude oil prices by
around 8%. However, natural gas and coal prices advanced during the month. In
Europe, news of extension of the outage in the main storage facility of the UK – around
70% of the UK storage capacity, supported winter hub prices. Total inventories in the
EU-28 member countries were at around 60% of storage capacity at the end of the
month versus 61% the previous year, as reported by Gas Infrastructure Europe.
Meanwhile, in the US, prices jumped as warmer-than-average summer weather
spurred higher cooling demand, while output remained flat, which has translated into
significantly smaller-than-average additions to underground storage, and the
consequent reduction in the current surplus.
Average energy prices in June decreased by 4.8% m-o-m, mainly driven by a 7.5%
decrease in average crude oil prices. Natural gas prices increased in the US by 8.6%
m-o-m, while average prices in Europe increased by 9.2%.
Agricultural prices decreased by 2.1%, mainly due to a decline in average food prices
by 3.0%, and raw materials by 1.4%, while beverage prices increased by 1.5%. Wheat
and maize led the decreases in food prices, down by 12.4% and 10.1%, respectively.
Average base metal prices advanced by 4.8%, with increases among all group
components. Nickel prices jumped by 14.9%, while aluminum and copper prices
advanced by 2.2% and 4.8%, respectively. Average iron ore prices advanced by 9.6%.
In the group of precious metals, gold prices advanced strongly by 4.7% on lowerthan-expected
interest rates in the US, while silver prices jumped by 15.7%.
In July, the Henry Hub natural gas index increased. The average price was up 22¢,
or 8.6%, to $2.79 per million British thermal units (mmbtu) after trading at an average of
$2.57/mmbtu the previous month.
The US Energy Information Administration (EIA) said utilities withdrew 6 billion cubic
feet (bcf) of gas from storage during the week ending 29 July. This was below analyst
expectations of an increase around 2 bcf and was the first withdrawal during summer
since 2006. Total working gas in storage stood at 3,288 bcf, or 13.4%, higher than at
the same time the previous year and 16.4% higher than the previous five-year average.
The EIA noted that temperatures during the reported week were higher than normal
throughout the lower 48 states.
Investment flows into commodities
Open interest volume (OIV) decreased in July for select US commodity markets such
as agriculture, crude oil, natural gas, copper, and livestock, while it increased for
precious metals. Meanwhile, monthly average speculative net length positions
increased for precious metals, natural gas and copper, while they declined for crude oil,
agriculture and livestock.
Agriculture’s OIV decreased by 5.0% to 4,914,815 contracts in July. Meanwhile,
money managers decreased their net long positions by 47% to 395,954 lots, largely
because of decreasing net length in corn.
Henry Hub’s natural gas OIV decreased by 5.1% m-o-m to 1,011,933 contracts in
July. Money managers decreased their net short positions by 7.1% to reach 36,847 lots
on increasing demand for cooling.
Copper’s OIV decreased by 18.1% m-o-m to 174,110 contracts in July. Money
managers switched to a net long position of 14,130 lots from a net short position of
29,657 on improving manufacturing prospects and recovery in the real estate market in
China.
Precious metals’ OIV advanced by 10.1% m-o-m to 835,713 contracts in July. Money
managers increased their net long positions by 17.3% to 346,488 lots.
