Energy & CommoditiesMonthly newsletter from Swedbank’s Economic Research Departmentby Jörgen Kennemar No. 7 • 27 August 2012Supply restrictions and geopolitical uncertainty lift commodity prices Swedbank’s Total Commodity Price Index rose by 5.2% measured in dollar terms in July compared with the previous month, driven by significantly higher food and crude oil prices. The price increase was due more to supply restrictions and geopolitical events than to higher demand, however. Excluding energy commodities and food, the index for industrial commodities fell for the fifth consecutive month. Weaker global industrial activity drove metal prices broadly lower, down 25% in July from the same month last year. The main reason for the decline was weaker Chinese growth. Lower metal prices, growing inventories and a downward revision to the global growth outlook could lead to production constraints in the mining industry in coming quarters. Swedbank’s Total Commodity Price Index, USDWeaker economic activity and a lower risk appetite declining by 0.3% in SEK. Due to the euro’s dropin the international financial markets contributed to against the dollar, the impact was greater for thelower commodity prices during the second quarter. euro countries in July, with prices rising by 5.5%In July Swedbank’s Total Commodity Price Index excluding energy commodities and by 7.8% if oilrose, however, but more due to supply restrictions and coal are included.and geopolitical events than to higher globaldemand. The index rose by 5.2% in July compared The extensive US drought has in short order drivenwith the previous month, driven by higher prices for food prices significantly higher, because of whichfood and crude oil. Excluding energy commodities, the commodity price index for foods rose in USD bythe index noted a modest gain in USD, 1.4%, while an average of 12.3% in July compared with June. Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000. E-mail: email@example.com www.swedbank.se Legally responsible publisher: Cecilia Hermansson. +46-8-5859 7720. Magnus Alvesson. +46-8-5859 3341. Jörgen Kennemar. +46-8-5859 7730.
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 7 • 27 August 2012The increase broke a downward price trend in The risk of a renewed food crisis like the one in2012. Lower anticipated production over the course 2007/08 can’t be overlooked, but can be avoided ifof the year and fears of limited global food trade the export embargo and other trade restrictionstend to drive up prices. The US Department of from four years ago arent repeated. Rising globalAgriculture’s (USDA) downward revision of food food prices are especially burdensome forproduction in the US reinforces this trend. With economies where food accounts for a large share ofproduction expected to be lower at the same time household spending.global demand is growing, grain inventories willshrink this fall after having built up during the last The price trend for agricultural commodities such astwo years on the heels of record-high harvests. pulp and lumber fell for the second consecutive month by a total of 5% in dollar terms. For Swedish producers, prices had a bigger impact because ofThe world’s largest corn exporters in 2011, millions of tons the stronger krona. Measured in SEK, pulp prices are at their lowest level since this January at slightly 0 10 20 30 40 over SEK 5 500 per ton, compared with just over US SEK 7 500 in June 2010, when pulp reached its latest peak. The decline for cotton continued in July Argentina and in dollar terms it reached the lowest price level Ukraine in nearly two years. Brazil India EU‐27 Pulp price per ton in SEK and USD Russia Serbia South AfricaThe biggest gains have been in grain prices (barley,corn and wheat), although soy beans and oilseedshave also risen sharply this summer and are now atrecord levels. Increased competition betweenethanol and food production is another reason whygrain prices have pushed higher. Since a largeshare of corn and rapeseed in the US and Europeis used in ethanol production (about 40% and 60%,respectively), calls to reduce ethanol production arelikely to grow. More expensive grain also meanshigher feed prices, which usually leads to highermeat prices as well. Weak industrial activity pressuringWe expect the high food prices to persist during the industrial metalssecond half-year. The average price level for the Economically sensitive industrial commodities (basefull-year 2012 is expected to be 4-5% lower than metals and agricultural products) continue to trendlast year, however, due to the earlier decline late lower, as they have since last spring, driven bylast year and at the start of 2012. The incentives for deteriorating global conditions. The globalhigher global production next year should be good manufacturing PMI fell in July to 48.4, the lowestconsidering the high food prices and increase in level since June 2009. Weaker economic activity inarable land in recent years. At the same time the China, which accounts for most of the globalmajor price fluctuations in recent years have increase in metal consumption, clearly impactedunderscored the vulnerability of the global food prices. This has led to growing surpluses, especiallysupply in the face of major production disruptions. for zinc and nickel. Although the commodity priceWhile we are predicting gradually lower prices next index for non-ferrous metals rose slightly in dollaryear, the average price level for food commodities terms between June and July (0.2%), metal priceswill be 5-6% higher in 2013. are nearly 25% lower than a year earlier. Nickel and lead have fallen the most in price in the last twelve months (30%), although copper has also dropped
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 7 • 27 August 2012significantly despite that supply conditions remain Geopolitical concerns lift oil pricestight. Crude oil prices rose substantially in dollar terms in July, up slightly over 12% on average after havingUnderlying metal demand is expected to remain low fallen nearly 30% between March and June (fromin the year ahead due to slower investment activity USD 126 to just under USD 90). Increasedand uncertainty about the impact of the euro crisis geopolitical concerns in the Middle East areon the global economy We expect prices for non- probably the main reason why prices are risingferrous metals as a group to fall by an average of again. This applies especially to Irans renewed15% in 2012 measured in dollar terms before threats to shut down the Strait of Hormuz since theturning slightly higher next year when production EU’s oil embargo on Iranian oil was introduced oncutbacks are predicted in the mining industry, which July 1. An increased US military presence in theshould gradually push prices higher. The Australian region and the deteriorating situation in Syria aremining giant BHP Billiton, for example, has also driving crude prices upward.signalled lower capital expenditure going forward. Brent-WTI crude price differentialChinese steel production and price trend for industrialmetals 150 50 100 Crude oil, Brent Prices on non- 125 ferrous metals, %-annual rate, 40 right scale 75 100 30 50 75 20 25%-change %-change 50 10 0 Price differens in USD , Brent minus WTI-oil 25 0 -25 0 Chines steel production, %-annual rate, left scale -10 -50 -25 05 06 07 08 09 10 11 12 -20 -75 Source: Reuters EcoWin 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: Reuters EcoWin Fears about future supplies from the Middle EastWeaker investment and lower steel production have again raised the risk premium on Brent crude.growth have led to a substantial price decline for The differential between US crude (WTI) andiron ore. In July prices fell by 3.6% in dollar terms European Brent crude has risen to just over USDfrom the previous month, which means that the 20 in August after having been as low as USD 9-10price level is now is more than 20% lower than a in mid-June. The biggest reason for the lower priceyear ago. In SEK the monthly decline was even of WTI crude is increased supply. In the US andhigher, 5.3%. A major reason for the price decline Canada, oil production has risen substantially infor ore is declining steel production in China and recent years in connection with new investmentsexpectations that economic stimulus will contribute and oil extraction from oil sands. At the same timeless to GDP growth in the year ahead. Even if consumption in North America has been weak.infrastructure investments are pushed forward, the Production disruptions in the North Sea during theimpact on metal prices is likely to be fairly limited, summer months and geopolitical uncertainty in thesince the announced investments are relatively Middle East have clearly impacted Brent crudesmall and arent expected to have the same impact prices. Higher Asian oil demand, most of whichon growth as in 2008/09, when a huge investment goes through the OPEC countries, also tends toprogram was implemented. lead to higher Brent prices compared with US crude. 3 (6)
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 7 • 27 August 2012This year we are forecasting an average oil price of global economy and in the longer term should leadUSD 110 a barrel, falling to USD 104 in 2013. to lower demand.Weaker economic conditions in the OECD countriesand emerging markets, which account for large part The biggest forecast risk is what happens politicallyof the increase in global oil consumption, suggest a in the Middle East, which could lead to majorlower price than todays USD 116 a barrel for Brent fluctuations in oil prices upward and downward. Acrude. The average crude price this year has been monetary action such as quantitative easing by theUSD 113. At the same time supplies have grown Federal Reserve (Fed) and the European Centralthanks to major production increases in Saudi Bank (ECB) could also drive up crude prices in theArabia during the first quarter. High oil prices at the short term, not to mention other commodities.same time are a burden for the already shaky Jörgen Kennemar
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 7 • 27 August 2012Swedbank Commodity Index - US$ - Swedbank Commodity Index - SKr -Basis 2000 = 1oo 28-08-12 Basis 2000 = 1oo 28-08-12 5.2012 6.2012 7.2012 5.2012 6.2012 7.2012T otal index 356,6 318,8 335,2 T otal index 272,8 244,6 252,9 Per cent change month ago -7,3 -10,6 5,2 Per cent change month ago -3,3 -10,3 3,4 Per cent change year ago -2,8 -11,5 -8,3 Per cent change year ago 9,5 -1,3 -0,2T otal index exclusive energy 263,0 252,8 256,3 T otal index exclusive energy 201,2 194,0 193,3 Per cent change month ago -3,7 -3,9 1,4 Per cent change month ago 0,5 -3,6 -0,3 Per cent change year ago -18,4 -21,1 -20,0 Per cent change year ago -8,1 -12,0 -13,0 Food, tropical beverages 251,6 246,0 276,3 Food, tropical beverages 192,6 188,8 208,4 Per cent change month ago -2,4 -2,3 12,3 Per cent change month ago 1,8 -2,0 10,4 Per cent change year ago -18,0 -18,5 -8,1 Per cent change year ago -7,6 -9,0 -0,1 Cereals 264,9 272,5 330,5 Cereals 202,7 209,1 249,3 Per cent change month ago -2,7 2,9 21,3 Per cent change month ago 1,5 3,2 19,2 Per cent change year ago -16,9 -11,2 14,6 Per cent change year ago -6,4 -0,9 24,6 T ropical beverages and tobacco 240,8 229,0 247,8 T ropical beverages and tobacco 184,3 175,7 186,9 Per cent change month ago -3,0 -4,9 8,2 Per cent change month ago 1,1 -4,6 6,4 Per cent change year ago -25,4 -28,2 -23,5 Per cent change year ago -16,0 -19,9 -16,8 Coffee 157,2 145,3 159,1 Coffee 120,3 111,5 120,0 Per cent change month ago -2,0 -7,6 9,5 Per cent change month ago 2,2 -7,3 7,6 Per cent change year ago -31,1 -32,5 -24,4 Per cent change year ago -22,3 -24,7 -17,7 Oilseeds and oil 266,4 265,2 302,2 Oilseeds and oil 203,9 203,5 228,0 Per cent change month ago -0,8 -0,5 14,0 Per cent change month ago 3,4 -0,2 12,0 Per cent change year ago 1,0 1,6 16,9 Per cent change year ago 13,8 13,3 27,2 Industrial raw materials 266,2 254,8 250,5 Industrial raw materials 203,7 195,5 189,0 Per cent change month ago -4,0 -4,3 -1,7 Per cent change month ago 0,1 -4,0 -3,4 Per cent change year ago -18,6 -21,8 -23,1 Per cent change year ago -8,3 -12,8 -16,4 Agricultural raw materials 169,6 160,7 158,0 Agricultural raw materials 129,8 123,3 119,2 Per cent change month ago -2,9 -5,2 -1,7 Per cent change month ago 1,3 -5,0 -3,4 Per cent change year ago -17,1 -22,1 -22,1 Per cent change year ago -6,6 -13,1 -15,3 Cotton 79,3 74,3 71,1 Cotton 60,7 57,0 53,6 Per cent change month ago -12,3 -6,3 -4,3 Per cent change month ago -8,5 -6,0 -5,9 Per cent change year ago -48,0 -52,3 -33,7 Per cent change year ago -41,4 -46,8 -27,9 Softwood 134,0 130,5 127,4 Softwood 102,5 100,1 96,1 Per cent change month ago -1,2 -2,6 -2,4 Per cent change month ago 3,1 -2,3 -4,0 Per cent change year ago -13,4 -16,2 -17,7 Per cent change year ago -2,5 -6,5 -10,5 W oodpulp 852,4 835,5 811,2 W oodpulp 652,3 641,2 611,9 Per cent change month ago 0,3 -2,0 -2,9 Per cent change month ago 4,6 -1,7 -4,6 Per cent change year ago -15,6 -18,0 -20,3 Per cent change year ago -4,9 -8,5 -13,3 Non-ferrous metals 231,4 218,2 218,7 Non-ferrous metals 177,1 167,4 165,0 Per cent change month ago -3,3 -5,7 0,2 Per cent change month ago 0,9 -5,4 -1,5 Per cent change year ago -19,5 -22,9 -24,7 Per cent change year ago -9,3 -14,0 -18,1 Copper 7927,3 7414,5 7588,7 Copper 6066,1 5689,8 5724,5 Per cent change month ago -4,0 -6,5 2,3 Per cent change month ago 0,1 -6,2 0,6 Per cent change year ago -11,5 -18,1 -21,1 Per cent change year ago -0,3 -8,7 -14,2 Aluminium 2000,5 1889,5 1873,8 Aluminium 1530,8 1450,0 1413,5 Per cent change month ago -2,3 -5,5 -0,8 Per cent change month ago 1,9 -5,3 -2,5 Per cent change year ago -22,8 -25,9 -25,4 Per cent change year ago -13,1 -17,4 -18,9 Lead 2001,7 1856,9 1876,0 Lead 1531,7 1425,0 1415,2 Per cent change month ago -2,9 -7,2 1,0 Per cent change month ago 1,2 -7,0 -0,7 Per cent change year ago -17,6 -26,2 -30,1 Per cent change year ago -7,2 -17,7 -23,9 Z inc 1930,8 1855,2 1850,8 Z inc 1477,5 1423,7 1396,1 Per cent change month ago -3,3 -3,9 -0,2 Per cent change month ago 0,8 -3,6 -1,9 Per cent change year ago -10,9 -16,8 -22,6 Per cent change year ago 0,4 -7,2 -15,8 Nickel 17017,8 16486,9 16155,1 Nickel 13022,3 12651,9 12186,6 Per cent change month ago -4,8 -3,1 -2,0 Per cent change month ago -0,7 -2,8 -3,7 Per cent change year ago -29,9 -26,1 -31,9 Per cent change year ago -21,0 -17,6 -25,9 Iron ore, steel scrap 611,4 598,6 576,8 Iron ore, steel scrap 467,9 459,4 435,1 Per cent change month ago -5,6 -2,1 -3,6 Per cent change month ago -1,5 -1,8 -5,3 Per cent change year ago -18,6 -20,4 -22,1 Per cent change year ago -8,3 -11,2 -15,2 Energy raw materials 398,1 348,0 370,3 Energy raw materials 304,6 267,1 279,3 Per cent change month ago -8,3 -12,6 6,4 Per cent change month ago -4,4 -12,3 4,6 Per cent change year ago 2,9 -7,8 -3,9 Per cent change year ago 16,0 2,8 4,5 Coking coal 369,2 334,9 339,0 Coking coal 282,5 257,0 255,7 Per cent change month ago -6,2 -9,3 1,2 Per cent change month ago -2,2 -9,0 -0,5 Per cent change year ago -19,6 -27,0 -26,3 Per cent change year ago -9,4 -18,6 -19,8 Crude oil 399,4 348,6 371,7 Crude oil 305,6 267,5 280,4 Per cent change month ago -8,4 -12,7 6,6 Per cent change month ago -4,5 -12,5 4,8 Per cent change year ago 4,2 -6,8 -2,7 Per cent change year ago 17,3 4,0 5,8Source : SW EDBANK and HW W A-Institute for Economic Research Hamburg Source : SW EDBANK and HW W A-Institute for Economic Research HamburgSwedbankEconomic Research Department Swedbank’s monthly Energy & Commodities newsletter is published as a service to our customers. We believe that we have used reliable sources and methods in the preparationSE-105 34 Stockholm, Sweden of the analyses reported in this publication. However, we cannot guarantee the accuracy orPhone +46-8-5859 7740 completeness of the report and cannot be held responsible for any error or omission in firstname.lastname@example.org underlying material or its use. Readers are encouraged to base any (investment) decisionswww.swedbank.se on other material as well. Neither Swedbank nor its employees may be held responsible forLegally responsible publisher losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’sCecilia Hermansson, +46-88-5859 7720 monthly Energy & Commodities newsletter.Magnus Alvesson, +46-8-5859 3341Jörgen Kennemar, +46-8-5859 7730 5 (6)