Energy & CommoditiesMonthly newsletter from Swedbank’s Economic Research Departmentby Jörgen Kennemar No. 3 • 19 March 2012 Rising commodity prices as oil prices reach new heights Swedbank’s Total Commodity Price Index rose for the second consecutive month, with energy commodities accounting for the biggest increase in February. In total, the index rose by 4.5% in USD. The appreciation of the krona against the dollar makes the increase more modest in SEK at 1.6%. Excluding energy, commodity prices fell in SEK. This is especially true of food commodities, the commodity group with the lowest price increase since the start of 2012. Metal prices rose by 4.1% in USD in February compared with the previous month. The biggest increases were for copper and zinc, although they are not yet back to the same levels as a year ago. The farthest from last years level is nickel, which is nearly 30% below its price 12 months ago. Tight supply conditions for several metals, led by copper, create the potential for a further rise in metal prices, provided that Chinese growth is not significantly weaker than expected. Supply conditions in the oil market have deteriorated in 2012 due to lower production at the same time that consumption in emerging economies is rising. As long as geopolitical uncertainty remains in the Middle East, we expect prices to remain high, which adds an economic risk, not least in Europe, where oil prices are higher than in 2008. Swedbank’s Total Commodity Price Index, USD 2 5 0 T o ta l in d e x F o o d 2 2 5 T o ta l e x c l e n e rg y c o m m o d it ie s 2 0 0 1 7 5 Index 1 5 0 1 2 5 M e t a ls 1 0 0 7 5 0 5 0 6 0 7 0 8 0 9 1 0 1 1 S o u rc e : S w e d b a n kSwedbank’s Total Commodity Price Index rose month that the index has risen, with energyby 4.5% in USD in February compared with the commodities as the biggest contributor. Excludingprevious month. This marks the second consecutive energy, the increase was limited to 2%, which 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. 3 • 19 March 2012means that the index is 10-15% lower than a yearago. Oil is the commodity that has increased the During the winter oil production has been lower bothmost in price in 2012. On average, crude prices in and outside OPEC. This is particularly true ofwere 5.6% higher in February, rebounding to the Syria, Yemen and South Sudan, which is largely forsame levels as mid-2011. The increase is greater in political reasons. At the same time extractioneuro due to its depreciation against the USD, with continues to decline in the North Sea and at the endoil prices averaging 90 euro a barrel in February. of last year was down to only half of the 2000This is higher than the previous peak in 2008, which production level. Irans threats to disrupt oiladds strain to an already shaky European economy. shipments in the Strait of Hormuz are clearly havingThe price of coal remains lower than a year ago in an impact on the spot market. The risk premium onboth USD and SEK, partly due to increased supply, Brent oil therefore continued to rise during the firstincluding from Russia and Colombia. two months of the year. Political developments in the Middle East will be critical to oil prices goingSeveral factors suggest that Europe could be forward, which are likely to fluctuate within a wideharder hit by todays high oil prices than the US. range in 2012.WTI crude from the US is currently priced USD 15-20 lower than European Brent, partly because of a Secondly, there is an element of speculation ingreater supply of WTI. (Todays large price today’s high oil prices. Since December liquidity hasdifferential deviates from previous patterns. risen substantially in global financial markets, notGenerally, low-sulphur WTI has commanded a least thanks to injections by central banks led byhigher price, since it can be used more easily by ECB. Increased access to liquidity and continuedrefineries to manufacture petroleum products). At low interest rates for the foreseeable future shouldthe same time US oil imports have decreased and push commodity prices higher.are now at their lowest level in over ten years due togrowing domestic production and lower We expect oil prices to remain high in the monthsconsumption. Net US oil imports represented over ahead with a risk of a continued stalemate in Irans40% of total consumption in 2011, while the nuclear talks. Prices have averaged nearly USDcorresponding figure in Spain, France, Germany 120 a barrel for the first three months of the year,and Italy is over 80%. and there are as yet no clear indications they will retreat to USD 110, the level of late 2011, beforeWhat is driving oil prices higher? First of all, supply Iran threatened to disrupt traffic in the Strait ofconditions in the oil market have become tighter. Hormuz. The risk of even higher prices cannot beInventories have shrunk in 2012 and according to ruled out if political conditions in the region worsen,the International Energy Agency (IEA) are below the affecting oil supplies. A significant drop in pricesaverage of the last five years. We believe that crude could occur, however, if there is a rapid politicalshortages are a bigger reason for the high prices solution in the region, which would also reduce thethan increased global consumption. Consumption in risk of supply disruptions.fact is trending lower. This is especially true of theOECD countries, while consumption in emerging Metal prices rose by 4.1% in USD in February,economies continues to grow, though at a slightly compared with 6.1% in January, breaking theslower pace. Consumption forecasts have therefore downward trend from last fall. Brighter economicbeen revised downward for this year. prospects and a stabilisation of the financial markets are driving industrial metal prices higher. Oil prices in USD and euro Copper and zinc noted the biggest gains in February, at 4.9% and 4.3%, respectively, while lead posted the weakest (1.7%). Although metal prices have risen by an average of just over 10% in the last two months, it will take time before they return to the levels of early last year. On average, industrial metals are 15-20% lower in USD than in 2011. The price of nickel was nearly 28% lower in February than last year, followed by lead (17.8%) and zinc (16.6%). From a cost perspective, there is therefore an incentive to build up inventories in the face of a future production increase, as Chinese companies did in late 2011. 2 (5)
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 3 • 19 March 2012Global demand for industrial metals is generally Cheney still production, annual % changeexpected continue to rise, although the growth ratewill be lower than in 2011. The investment boom inChina, especially the construction sector, is notexpected to continue at the same rate as in recentquarters. In the OECD countries, consumption isexpected to remain low or even shrink in 2012.Supply restrictions, including a shortage of skilledlabour, and insufficient investment to meet growingdemand from emerging economies are puttingupward pressure on prices, however. Higher oilprices are also driving up production anddistribution costs for mining companies, whichshould place upward pressure on metal prices. Global PMI for industry and metal prices Investor interest in precious metals such as gold and silver is not as widespread as before despite increased liquidity in the global financial markets. Since the beginning of the year gold and silver have risen by 4.8% and 8.5%, respectively, in USD. Prices of precious metals have trended lower since peaking last year, but have fluctuated significantly. The price of gold is about 10% lower in USD than its peak in September 2011, and the price of silver is as much as 30% cheaper than its peak in April of last year. Financial redistributions between different commodities may be a contributing reason why precious metals have lost ground relative to energy and metal commodities. A stronger USD and an increased risk appetite in the financial markets areIron ore and scrap prices have been less volatile also weakening investor interest in precious metals.than non-ferrous metals. In February the price ofiron ore was largely unchanged compared with The price index for food rose in USD by a marginalJanuary and marginally lower than last year. 0.5% in February compared with January. TheFundamental factors point to lower iron ore prices, largest increases were for oilseeds and vegetablehowever, at least in the short term. Chinese steel commodities, while grain prices rose by a moreproduction – 40% of global production – is expected modest 0.5%. The biggest gainer among grains wasto grow at a slower pace in 2012 than last year barley. Part of the increase is probably the result ofwhen Chinese construction activity cooled. higher ethanol production as oil prices rise. In the US, the worlds largest ethanol producer, productionAfter growing by 8% last year, steel production in has risen to new record highs. Continued high oilChina is expected to further slow in 2012, driven by prices provide an added incentive to expandthe government’s austerity measures in the past ethanol production, which tends to raise food prices,year. At the same time capacity in the Chinese steel especially grain. Food prices co-vary well with oilindustry is declining. Lower steel production means prices, since fuel and fertilizer account for a largethat demand for iron ore should slow in the months share of total production costs. Persistently high oilahead, where China accounts for as much as 60% prices would therefore raise food prices.of global trade. The downward price trend in pulp continued in February, though at a slower rate. The price fell by an average of 0.3% in USD during the month, compared with 3% in SEK. In one year the price of pulp has fallen by slightly over 12% in USD, or by 3 (5)
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 3 • 19 March 20129.5% in SEK. Substantial capacity reductions havetaken a bite out of global overcapacity. Thisincreases the likelihood that pulp prices will stabiliseor turn higher in the months ahead, at the sametime that the global economic outlook hasbrightened in recent months. Price for Crude oil and Grains 200 175 150 Grains 125Index 100 75 Price for Crude oil, Brent 50 25 05 06 07 08 09 10 11 12 Källa: Reuters EcoWin Jörgen Kennemar 4 (5)
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 3 • 19 March 2012Swedbank Commodity Index - US$ - Swedbank Commodity Index - SKr -Basis 2000 = 1oo 21-03-12 Basis 2000 = 1oo 21-03-12 12.2011 1.2012 2.2012 12.2011 1.2012 2.2012T otal index 359,7 368,7 385,4 T otal index 267,8 274,5 279,0 Per cent change month ago -1,4 2,5 4,5 Per cent change month ago 0,2 2,5 1,6 Per cent change year ago 14,5 12,7 12,9 Per cent change year ago 14,6 15,8 17,0T otal index exclusive energy 264,1 271,5 276,9 T otal index exclusive energy 196,6 202,2 200,4 Per cent change month ago -2,0 2,8 2,0 Per cent change month ago -0,4 2,8 -0,9 Per cent change year ago -9,8 -12,0 -13,2 Per cent change year ago -9,6 -9,7 -10,1 Food, tropical beverages 258,7 264,8 266,1 Food, tropical beverages 192,6 197,2 192,6 Per cent change month ago -3,7 2,4 0,5 Per cent change month ago -2,1 2,4 -2,3 Per cent change year ago -9,6 -12,5 -16,2 Per cent change year ago -9,5 -10,1 -13,2 Cereals 269,0 275,5 277,6 Cereals 200,3 205,1 201,0 Per cent change month ago -3,0 2,4 0,8 Per cent change month ago -1,4 2,4 -2,0 Per cent change year ago -3,5 -6,5 -11,7 Per cent change year ago -3,4 -4,0 -8,6 T ropical beverages and tobacco 274,0 277,0 274,2 T ropical beverages and tobacco 204,0 206,2 198,5 Per cent change month ago -4,4 1,1 -1,0 Per cent change month ago -2,8 1,1 -3,8 Per cent change year ago -9,1 -12,6 -18,8 Per cent change year ago -9,0 -10,3 -15,9 Coffee 189,1 188,7 182,1 Coffee 140,8 140,5 131,8 Per cent change month ago -2,4 -0,2 -3,5 Per cent change month ago -0,8 -0,2 -6,2 Per cent change year ago 2,9 -4,4 -15,7 Per cent change year ago 3,0 -1,8 -12,6 Oilseeds and oil 218,8 231,3 241,0 Oilseeds and oil 162,9 172,2 174,5 Per cent change month ago -2,4 5,7 4,2 Per cent change month ago -0,8 5,7 1,3 Per cent change year ago -15,2 -16,3 -12,7 Per cent change year ago -15,1 -14,1 -9,6 Industrial raw materials 265,7 273,5 280,0 Industrial raw materials 197,8 203,6 202,7 Per cent change month ago -1,5 2,9 2,4 Per cent change month ago 0,1 2,9 -0,5 Per cent change year ago -9,8 -11,9 -12,3 Per cent change year ago -9,7 -9,5 -9,2 Agricultural raw materials 167,1 166,8 171,6 Agricultural raw materials 124,4 124,2 124,2 Per cent change month ago -3,8 -0,2 2,9 Per cent change month ago -2,2 -0,2 0,0 Per cent change year ago -13,5 -16,9 -17,1 Per cent change year ago -13,4 -14,7 -14,1 Cotton 89,1 96,3 92,0 Cotton 66,3 71,7 66,6 Per cent change month ago -7,4 8,1 -4,5 Per cent change month ago -5,9 8,1 -7,1 Per cent change year ago -36,7 -36,5 -50,5 Per cent change year ago -36,6 -34,8 -48,7 Softwood 132,3 129,7 131,4 Softwood 98,5 96,6 95,1 Per cent change month ago -4,3 -2,0 1,3 Per cent change month ago -2,8 -2,0 -1,5 Per cent change year ago -8,5 -10,1 -9,1 Per cent change year ago -8,4 -7,6 -5,9 W oodpulp 846,0 831,6 829,0 W oodpulp 629,9 619,2 600,1 Per cent change month ago -4,7 -1,7 -0,3 Per cent change month ago -3,1 -1,7 -3,1 Per cent change year ago -10,9 -12,4 -12,7 Per cent change year ago -10,8 -10,0 -9,5 N on-ferrous metals 229,6 243,6 253,6 Non-ferrous metals 171,0 181,4 183,6 Per cent change month ago -1,2 6,1 4,1 Per cent change month ago 0,5 6,1 1,2 Per cent change year ago -16,7 -15,5 -15,6 Per cent change year ago -16,6 -13,2 -12,5 Copper 7568,2 8020,8 8415,2 Copper 5635,0 5972,0 6091,9 Per cent change month ago 0,2 6,0 4,9 Per cent change month ago 1,9 6,0 2,0 Per cent change year ago -17,1 -16,1 -14,7 Per cent change year ago -17,0 -13,9 -11,7 Aluminium 2020,0 2135,9 2202,8 Aluminium 1504,0 1590,3 1594,6 Per cent change month ago -2,6 5,7 3,1 Per cent change month ago -1,0 5,7 0,3 Per cent change year ago -13,9 -12,5 -12,2 Per cent change year ago -13,8 -10,1 -9,0 Lead 2017,0 2088,6 2124,9 Lead 1501,8 1555,1 1538,2 Per cent change month ago 1,8 3,5 1,7 Per cent change month ago 3,4 3,5 -1,1 Per cent change year ago -16,1 -19,7 -17,8 Per cent change year ago -16,0 -17,5 -14,9 Z inc 1912,5 1973,4 2056,4 Z inc 1424,0 1469,3 1488,7 Per cent change month ago -0,2 3,2 4,2 Per cent change month ago 1,5 3,2 1,3 Per cent change year ago -15,8 -16,9 -16,6 Per cent change year ago -15,7 -14,6 -13,6 N ickel 18171,7 19748,2 20446,1 N ickel 13530,0 14703,8 14801,2 Per cent change month ago 1,6 8,7 3,5 Per cent change month ago 3,3 8,7 0,7 Per cent change year ago -24,5 -22,9 -27,6 Per cent change year ago -24,3 -20,8 -25,0 Iron ore, steel scrap 619,2 630,4 631,5 Iron ore, steel scrap 461,0 469,4 457,2 Per cent change month ago -0,3 1,8 0,2 Per cent change month ago 1,4 1,8 -2,6 Per cent change year ago 2,0 -3,5 -4,3 Per cent change year ago 2,2 -0,9 -0,9 Energy raw materials 402,1 411,8 433,6 Energy raw materials 299,4 306,6 313,9 Per cent change month ago -1,3 2,4 5,3 Per cent change month ago 0,3 2,4 2,4 Per cent change year ago 24,2 22,9 23,4 Per cent change year ago 24,4 26,2 27,9 Coking coal 422,8 438,5 437,8 Coking coal 314,8 326,5 316,9 Per cent change month ago -1,3 3,7 -0,2 Per cent change month ago 0,3 3,7 -2,9 Per cent change year ago -7,0 -10,6 -8,7 Per cent change year ago -6,9 -8,2 -5,4 Crude oil 401,2 410,6 433,4 Crude oil 298,7 305,7 313,7 Per cent change month ago -1,3 2,3 5,6 Per cent change month ago 0,3 2,3 2,6 Per cent change year ago 26,2 25,1 25,5 Per cent change year ago 26,4 28,5 30,0Source : SW ED BANK and H W W A-Institute for Economic Research Hamburg Source : SW EDBANK and HW W A-Institute for Economic R esearch 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 (5)