Average energy commodity prices declined in May, with drops in both crude oil and coal, while, on the
contrary, natural gas prices advanced. In the group of non-energy commodities, agricultural commodities
advanced due to large increases in grain prices, partly due to weather-related events at the end of April
and during May, while metals generally declined on slowing manufacturing prospects and monetary
tightening in China. Precious metals mainly declined in the first days of the month, but the trend was
largely reversed on the perceived difficulties of the US administration to move forward its economic
agenda.
Trends in selected commodity markets
During the month, commodity market sentiment weakened due to slow pace of the decline in commercial
stocks overhang pressuring down oil prices during the month. Meanwhile, metal prices weakened as the
pace of expansion of global manufacturing slowed. The JP Morgan Global Manufacturing PMI reading for
May was at a 6-month low of 52.6, largely due to a deceleration in expansion of the activity in China, amid
efforts by financial industry regulators to improve risk management practices which have resulted into some
financial tightening. Meanwhile, lower-than-expected inflation readings in the US and further difficulties
experienced by the new US administration to move forward growth enhancing legislation translated into
market participants’ reassessment of their expectations regarding the path of interest rate hikes in the US,
thereby supporting gold prices in the second half of the month.
Agricultural commodities’ advances were led by the first increase in food prices since January, mainly due
to higher grain prices. Rice prices jumped after the harvested volumes were below expectations due to flash
flooding in March and April in Bangladesh, which resulted in the necessity of higher-than-anticipated imports.
Wheat prices rose sharply due to the effect of snowy and frosty conditions in the US Central Plains in late
April. At the same time, the US Department of Agriculture’s first estimates for the 2017/2018 marketing year
showed an expected decline in wheat supplies of around 9% in that country. However, with global ending
stocks still expected to increase, the room for large price increases could be limited. Meanwhile, corn prices
were also supported by expectations by the USDA of a decline in corn supplies in the US and China in
2017/2018 that would result in a reduction in global ending stocks to the lowest since 2013/2014. Meanwhile,
sugar and coffee prices were in decline, following a sharp decline in the Brazilian Real due to political
instability in that country.
Base metals showed a broad-based decline, on top of the above-mentioned slowdown in the pace of
expansion in global manufacturing, but mainly in the largest metal consumer, China, as shown by the Caixin
manufacturing PMI reading of 49.6 that signalled the first deterioration of the operating conditions in the
sector in 11 months. In addition, further doubts about the ability of the US administration to move forward an
infrastructure stimulus programme also weighed on prices. Copper prices were under pressure at the
beginning of the month due to a sharp jump in inventories at the London Metal Exchange’s warehouse
system. Nickel prices declined sharply on the expectation of larger supplies from Indonesia, where the
government is reaching an agreement with mining companies to restart exports, while in the Philippines, the
new environment minister has shown willingness to allow the restart of mining operations. Iron ore prices
declined sharply following bloated inventories at Chinese ports. Steel output in China increased by 4.9% in
April and was up worldwide by 5.0%, according to World Steel Association.
Energy commodity prices were led down by lower crude oil prices as market participants assessed the
pace of market rebalancing. Natural gas advanced in the US due to below-average injections to underground
storage at the beginning of the month on higher-than-average temperatures. However, the forecast for milder
temperatures at the end of the month and the beginning of June, together with some recovery in output,
weakened prices thereafter. In Europe, natural gas inventories in the EU 28 countries were at 40.2% full at
the end of May, which is below last year’s rate of 49.2%, according to Gas Infrastructure Europe. Coal prices
declined as Chinese output has recovered.
Average energy prices in May decreased by 4.4% m-o-m, due to a 4.1% decrease in average crude oil
prices, while Australian benchmark thermal coal prices decreased by 11.7% m-o-m. Natural gas prices
increased in the US by 1.4%, while average import prices in Europe advanced by 2.1%.
Agricultural prices advanced by 1.4% in April, with average food prices increasing on average by 2.4%.
Benchmark Thailand rice, wheat and maize increased by 10.8%, 8.7% and 1.4%, respectively. In the group
of beverages, Arabica coffee prices fell by 3.5%.
Average base metal prices decreased by 1.2% in March, led by a 1.5% monthly decrease in copper prices
and a 4.7% decrease in nickel prices. Average iron ore prices dropped by 11.1% following lower steel prices.
In the group of precious metals, gold prices decreased by 1.6% on average mainly due to drops at the end
of the previous month and at the beginning of May, but the majority of the losses were reversed in the
second half of the month on lower real interest rate expectations in the US following difficulties of the new
US administration to move forward healthcare, tax and infrastructure legislation.
In May, the Henry Hub natural gas index advanced. The average price was up by 4?, or 1.4%, to $3.12 per
million British thermal units (mmbtu) after trading at an average of $3.08/mmbtu the previous month.
The EIA said utilities added 81 billion cubic feet (bcf) of working gas in underground storage during the
week ending 26 May. This was slightly above the median analysts’ expectations of a 76 bcf injection. Total
working gas in underground storage stood at 2,525 bcf, which is 12.8% lower than at the same time the
previous year but 9.8% higher than the previous five-year average.
Investment flows into commodities
Open interest (OI) increased in May for selected US commodity markets such as crude oil, natural gas and
copper, while it declined for agriculture, copper and precious metals. Meanwhile, in monthly terms,
speculative net length positions increased for natural gas but declined for agriculture, crude oil, copper,
precious metals and livestock.
Agriculture’s OI decreased by 4.4% to 5,074,144 contracts in May. Meanwhile, money managers increased
their combined net short positions by 22% to 371,278 lots, largely because of increasing in monthly average
net shorts in soybeans, sugar and corn.
Henry Hub’s natural gas OI increased by 7.6% m-o-m to 1,532,029 contracts in May. Money managers
increased their average net length by 19% m-o-m to 215,064 contracts. However, the net length declined
towards the end of the month.
Copper’s OI decreased by 9.2% m-o-m to 249,486 contracts in May. Money managers decreased their net
long positions by 7.3% to 43,737 on the slowing pace of manufacturing in China and a lack of details
regarding the expected infrastructure stimulus in the US.
Precious metals’ OI decreased by 4.6% m-o-m to 647,184 contracts in May. Money managers decreased
their net long positions by 38% to 143,576 lots.
