Average energy commodity prices were mixed in June. There were falls in crude oil prices, natural gas prices were mixed across regions, while coal prices, on the other hand, rebounded. In the group of non-energy commodities, prices of agricultural commodities were led down by declines in oilseeds, vegetable oils, sugar and natural rubber but grains advanced as a result of weather related events. Base metals had a mixed performance. While there was support from improved manufacturing conditions in China. However, rising aluminium output and the prospect of higher nickel ore output and exports from Philippines and Indonesia weighed down on prices. Precious metals declined towards the end of the month due to higher real interest rate expectations in the US.
Trends in selected commodity markets
Two consecutive average m-o-m falls in crude oil prices continued to negatively affect commodity market sentiment. Meanwhile metals found some support as the pace of global manufacturing held steady, as signalled by JP Morgan Manufacturing PMI unchanged at 52.6 in June from the previous month, helped by a slight rebound in China. Agricultural commodities continued to be weakened by large inventories, though some products advanced mainly due to adverse weather conditions, as was the case for wheat in the US and rice in South East Asia. Gold prices declined strongly towards the end of the month due to hawkish talk by Central Bank officials of major developed economies, despite recent soft inflation readings.
Agricultural commodity prices declined with drops in the food, beverage and raw material groups. Food prices declined due to lower vegetable oil and sugar prices; however, grain prices advanced. Plentiful supplies of oilseeds keep adding pressure to oilseeds and vegetable oil prices. During the month, the Brazilian National Food Supply Company (CONAB) increased its estimation of the soybean crop to a record 113.9m Metric Tonnes (MT) versus 95.4m MT the previous year. Meanwhile, the US Department of Agriculture forecast on world ending stocks of soybeans for the marketing year 2017/2018, was raised to just below the 2016/2017 expected level. Sugar prices declined sharply as Brazilian sugar mills are diverting a higher portion of their crops towards sugar production instead of ethanol, given the still favourable international sugar prices, lower fuel prices and exchange rate. Grains, on the other hand, advanced on top of rallying spring wheat prices due to dry weather in the northern plains of the US, while rice prices soared for the second consecutive month as a result of the impact of flooding in South East Asia.
Base metals had a mixed performance in June, though they were supported by some improvement in manufacturing activity in China during the month. Copper prices were also underpinned by inventory drops in the LME system during the month. Aluminium prices declined following increasing production in China, which rose by 5.6% y-o-y in May, and it has risen by 11% y-o-y from January until May, as reported by the International Aluminium Institute. Nickel prices continued to decline due to the resumption of ore exports from Indonesia and the prospect of mines reopening in the Philippines which had been previously closed because of an environmental review. Iron ore was weaker due to rising inventories at Chinese ports but increased towards the end of the month with the recovery in steel prices. World crude steel output increased by 2.0% y-o-y and by 1.8% y-o-y in China - though in absolute terms it was lower than in April, according to the Word Steel Association.
Energy prices were led down by a steep fall in oil prices due to increasing crude output from some exporters, rising US inventories at the beginning of the month and an increasing number of bearish bets by money managers. Natural gas prices declined steeply in the US due to lower demand in view of mild temperatures. In Europe, natural gas inventories in the EU-28 countries were at 51.1%full at the end of June versus 60.9% at the same time the previous year, and 40.2% at the end of the previous month, according to Gas Infrastructure Europe. Coal prices advanced mainly due to higher demand for power generation in China. However Chinese coal output continued to improve. It increased by 12% y-o-y in May according to the National Bureau of Statistics of China, recovering from the impact of the previous year’s government imposed restrictions.
Average energy prices in June decreased by 6.0% m-o-m, mainly due to a 7.5% decrease in average crude oil prices. Natural gas prices decreased in the US by 5.9%, while average import prices in Europe advanced by 1.1%. Australian benchmark thermal coal prices increased by 8.6% m-o-m.
Agricultural prices decreased by 1.4% in June, with average food prices decreasing on average by 1.1%. Sugar, palm oil and soybeans decreased by 13.4%, 6.9% and 2.1%, respectively. In the group of raw materials, natural rubber and cotton prices decreased by 5.9% and 4.4%, respectively.
Average base metal prices increased by 0.2% in June, with mixed movements across the group. Copper advanced by 2.1%, while aluminum prices declined by 1.4%. Average iron ore prices dropped by 7.9% but recovered towards the end of the month following steel prices.
In the group of precious metals, gold prices advanced by 1.1% on average, however they declined steeply towards the end of the month on the expectation of higher interest rates in the US.
In the group of precious metals, gold prices advanced by 1.1% on average, however they declined steeply towards the end of the month on the expectation of higher interest rates in the US.
The EIA said utilities added 72 billion cubic feet (bcf) of working gas in underground storage during the week ending 30 June. This was above the median analysts’ expectations of a 66 bcf injection. Total working gas in underground storage stood at 2,888 bcf, 9% lower than at the same time the previous year, but 6.9% higher than the previous five-year average.
Investment flows into commodities
Open interest (OI) increased in June for selected US commodity markets such as crude oil, copper, precious metals and livestock, while it declined for agriculture and natural gas. Meanwhile, in monthly terms, speculative net length positions increased for precious metals, copper and livestock but declined for crude oil and natural gas. Net short positions decreased for agriculture.
Agriculture’s OI increased by 2.1% to 5,181,546 contracts in June. Meanwhile, money managers decreased their combined net short position to 357,235 lots. Net short positions increased in the soy complex and sugar, but decreased in corn and wheat.
Henry Hub’s natural gas OI decreased by 7.0% m-o-m to 1424,870 contracts in June. Money managers decreased their net length by 63.7% to 78,078 due to milder weather.
Copper’s OI increased by 4.2% m-o-m to 259,888 contracts in June. Money managers increased their net long positions by 27.2% to 55,623 on improving manufacturing conditions in China.
Precious metals’ OI increased by 3.5% m-o-m to 669,727 contracts in June. Money managers increased their net long positions by 7.6% to 154,471 lots, mainly because of increases in the first two weeks of the month. The trend reversed in the second half of the month.
