Average commodity prices were mixed in September. Advances in energy
commodity prices were led by higher coal prices, which have increased for the
fifth consecutive month, while crude oil prices also increased during the second
half of the month in anticipation of the OPEC Meeting. In the group of non-energy
commodities, prices of agricultural commodities generally declined on
continuing expectation of well supplied markets, while in the group of base
metals, prices were down, led by lower copper and aluminium prices.
Trends in selected commodity markets
Commodity prices were generally weak in the first half of the month on a myriad of
factors, including soaring copper stock levels in the London Metal Exchange
warehouse system, large forecast stock levels in key agricultural commodities, as well
as a small chance of an interest rate hike before the September meeting of the US
Federal Reserve (Fed). Nonetheless, the anticipation of an agreement at the OPEC
Meeting in Algiers, better-than-anticipated readings of industrial production in China in
August and unfavourable conditions for harvest in the US and Canada due to rains,
provided support for commodity prices in the second half of the month. In spite of the
Fed’s decision to keep the policy rate unchanged, market participants increased their
expectations of an interest rate increase by the end of the year, which weakened gold
prices during the month.
In the group of agricultural commodities, price declines were led by food prices,
mainly due to the persistent oversupply of grains. The US Department of Agriculture
increased its forecast for the end-of-season world stocks for the marketing year
2016/2017 for soybeans and rice. At the same time, it made a small downward revision
in inventory estimation for wheat and corn due to higher demand, but still at an all-time
record for both commodities. However, in the second half of the month, wet weather in
the main producing regions of the US and Canada gave support to prices of wheat,
corn and soybeans. Meanwhile, sugar prices jumped to their highest since 2012 on
lower-than-expected output in Brazil, as reported by the Brazil sugar cane association
UNICA, and on the prospect of lower expected output in the upcoming year in India,
forecast by the India Sugar Mills Association.
Metal prices were mixed, with declines at the beginning of the month led by falls in
copper due to increasing LME inventories, which have more than doubled in three
months. Moreover, primary aluminum output in China in August, which was close to
last year’s monthly record, according to data from the International Aluminum Institute,
also put pressure on prices. However, prices recovered on improving industrial output
readings showing a 6.3% increase in August y-o-y versus 6.0% the previous month in
China, while prices of newly constructed buildings increased in 64 of the 70 largest
cities m-o-m, according to the National Bureau of Statistics in the country. Iron ore
prices retreated following lower steel prices. World steel output increased by 1.6% in
August, while, in China, it increased by 3.0% y-o-y, according to the World Steel
Association.
Energy commodity prices generally advanced following different trends during the
month. Crude oil advanced on the anticipation of an agreement at the OPEC Meeting
in Algiers. Coal prices also advanced, buoyed by reduced raw coal output in China
– 10.2% down in the first eight months in comparison to the previous year
according to the National bureau of Statistics – and a 48% y-o-y jump in imports to
China in the last month. Natural gas prices advanced in the US on declining
production and robust demand, which has translated into a reduction in the stock
overhang by around 5% above the five-year average, from around 50% in April. In
Europe, gas prices declined with EU-28 stocks around 91% full at the end of
September according to Gas Infrastructure Europe.
Average energy prices in September increased by 0.9% m-o-m, led by a 0.4%
increase in average crude oil prices. Natural gas prices increased in the US by 6.4%
m-o-m, while average prices in Europe decreased by 5.8%.
Agricultural prices decreased by 0.5%, mainly due to a 1.0% decline in average food
prices and a 0.1% decline in raw material prices. Beverage prices advanced by 0.9%.
Soybean meal and Thai benchmark rice prices led the decreases in food prices, with
the two products down by 7.4% and 8.4%, respectively.
Average base metal prices decreased by 1.2%, mainly due to a 3.1% decrease in
aluminum and 0.7% decline in copper prices. Average iron ore prices declined by
4.9%.
In the group of precious metals, gold prices declined by 1.0% as the prospects for
higher interest rates in the US increased, while silver prices declined by 1.2%.
In September, the Henry Hub natural gas index was relatively stable. The average
price was up 18¢, or 6.4%, to $2.97 per million British thermal units (mmbtu) after
trading at an average of $2.79/mmbtu the previous month.
The US Energy Information Administration (EIA) said utilities added 80 billion cubic feet
(bcf) of gas to storage during the week ending 30 September. This was above median
analysts’ expectations of an increase of around 71 bcf. Total working gas in storage
stood at 3,680 bcf, or 2.1%, higher than at the same time the previous year and 5.9%
higher than the previous five-year average. The EIA noted that temperatures during the
reported week “averaged higher than normal” throughout the Lower 48 States.
Investment flows into commodities
Open interest volume (OIV) decreased in September for select US commodity
markets such as crude oil, natural gas, copper and livestock, while it also decreased for
precious metals and agriculture. Meanwhile, the monthly average speculative net
length positions increased for crude oil and natural gas, while they declined for
agriculture, copper, precious metals, and livestock.
Agriculture’s OIV decreased by 0.6% to 4,913,783 contracts in September.
Meanwhile, money managers decreased their net long positions by 7.5% to
260,898 lots, largely because of decreasing net length in corn.
Henry Hub’s natural gas OIV increased by 0.5% m-o-m to 1,059,073 contracts in
September. Money managers switched to a net long position of 80,920 contracts from
a previous net short position of 36,961 lots, on a declining inventory overhang.
Copper’s OIV increased by 3.8% m-o-m to 194,469 contracts in September. Money
managers’ short positions increased 7.4 times to 23,714 lots on rising copper
inventories in the LME system.
Precious metals’ OIV decreased by 0.7% m-o-m to 773,936 contracts in September.
Money managers decreased their net long positions by 2.2% to 319,822 lots.
