Energy & CommoditiesMonthly newsletter from Swedbank’s Economic Research Departmentby Jörgen Kennemar No. 6 • 8 June 2012 Shaky economic outlook and falling commodity prices In May Swedbank’s Total Commodity Price Index fell by 7.3% in USD compared with the previous month, the largest monthly decline since the global financial crisis in 2009. Crude prices saw the biggest decline in the index. Lower oil prices are having a positive effect on the global economy, however, which during the spring showed clear signs of a slowdown. With economic uncertainty, growing oil inventories and a stronger dollar, crude prices are likely to average around USD 110 a barrel for 2012, compared with USD 119 in our April forecast. Excluding energy commodities, Swedbank’s price index fell by 3.7%, with metal and food prices both lower. The slowdown in industrial activity in the EMU countries and several emerging economies has led to rising metal inventories, which generally means lower goods manufacturing. Accelerated infrastructure investment in China could boost demand, however. Investor interest in precious metals remains weak despite renewed concerns about the global financial markets. We feel that there is room for higher gold prices going forward, especially against the backdrop of the uncertain economic conditions and low interest rates. Swedbank’s Total Commodity Price Index, USDSwedbank’s Total Commodity Price Index fell by last year. The biggest decline was for energyno less than 7.3% in USD in May from the previous commodities, led by crude. The average oil pricemonth, the biggest monthly decline in over two fell to the lowest level since October of last year.years. The index is now lower than the same month Coal prices fell for the fourth consecutive month 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. 6 • 8 June 2012and are nearly 20% lower than a year ago. This SEK, which means that it is not just a currencysuggests lower energy consumption and steel effect.production, where a large share of the coal goes to.As a whole, the index for energy commodities fell Crude prices by currencyby 8.3% between April and May. This is a 29-mar 04-jun %-changesignificant reversal from earlier this year, when USD 129,9 98,4 -24,2rising oil prices stoked concerns about the impact EUR 99,1 78,7 -20,6on the global economy. The risk premium on crude SEK 884,3 706,1 -20,2due to growing geopolitical uncertainty in the MiddleEast has decreased during the latest month despite The average oil price this year is slightly over USDthat political negotiations on Irans nuclear policy 117 a barrel, slightly below our spring forecast ofhave produced few results so far. Instead, USD 119. Because of the price slide this spring andincreased uncertainty about the global recovery is the shaky global economy, however, we arewhats driving oil prices lower. revising our forecast downward for this year. The biggest price decline is probably already behind us,During the last month there have been growing and it seems less likely that OPEC will allow crudesigns that the international economy has slowed. prices to continue falling without taking action,This applies to the OECD countries as well as provided that the global economy doesntseveral fast-growing emerging economies such as significantly worsen. An oil price of around USD 100China and India. Crude demand is weaker and during the second half-year would mean ansupplies have risen. Record-high production in average price for 2012 of USD 110 a barrel. LowerSaudi Arabia – the highest in 30 years – and projected prices later in 2012 are also affecting thegrowing inventories in the US are driving down oil average price forecast for 2013, which is expectedprices. The spot price for Brent crude was just to be around USD 105, compared with ourunder USD 100 a barrel at the time of writing, a prediction this spring of USD 114. On the otherlevel Saudi Arabia and other producers are more hand, prices could be driven higher by a morecomfortable with than the higher prices earlier this expansive monetary policy through liquidityspring. Brent crude futures for delivery in December injections, geopolitical developments in the Middle2012 indicate a continued price decline. East, a weaker dollar or economic stimulus in China, among other places.Oil prices and USD/Euro Lower metal prices and growing inventories The decline in commodity prices in May isnt so conspicuous when energy commodities are taken out. In total, Swedbank’s Commodity Price Index excluding energy commodities fell by 3.7% compared with April, the third consecutive monthly decline. Economically sensitive metal prices fell by 3.3% in USD, with nickel and copper posting the biggest drops (4.8% and 4.0%). Other industrial metals (lead, zinc and aluminum), also trended lower as the global economy slowed. Rising metal inventories indicate that global demand is sliding. In China, the world’s largest metal consumer, imports have slowed in pace with industrial activity. Only copper inventories have shrunk, reaching the lowest level in over three years in May. In spite of this, average copper pricesOil prices are dropping at the same time that the fell to just under USD 8 000. Along with nickel,dollar has strengthened in nominal trade-weighted copper has seen the most price volatility amongterms, which tends to drive global commodity prices industrial metals in recent years, due to bothlower, since commodities are generally priced in fundamental changes (supply and demand) andUSD. But prices have also dropped in euro and capital flows. The price of zinc on the other hand has been relatively stable at around USD 2 000 a
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 6 • 8 June 2012ton in the last three years. The trend for non-ferrous nearly 18% lower than a year ago. There aremetals has largely been in line with a projected variations between food commodities, however.decline of 8% this spring. The recent shaky Oilseed prices, but also grains, have held up better,economy is increasing the risk that metal prices will while beverages and sugar have dipped to theirbe weaker during the second half-year than we had lowest levels in nearly two years.forecast this spring, however.Price trend for metals January 2011=100 Grain prices in USD, 2005=100 450 Wheat 400 350 300 Cereal products 250 200 150 Corn 100 50 05 06 07 08 09 10 11 12 Source: Reuters EcoWin Weather-related factors have a major impact onIron ore prices fell by 5.5% in USD in May food prices, where droughts or floods in major foodcompared with the previous month and are back to producing regions such as Australia, Russia, thethe same levels as early 2012. Capacity cutbacks in US and the EU can quickly affect supplies. Thethe Chinese steel industry and lower investment major fluctuations in food prices in recent years aregrowth suggest falling iron ore prices in the short also proof of the huge consequences of productionterm from todays USD 135 a ton. Estimates of the cutbacks. The first grain forecasts from the FAO forsize of the decline vary from 5-20% for 65% ore, 2012 point to a record production level of 27 milliondepending not least on the Chinese economy. tons, up 1% from 2011. For wheat, however, lowerAccelerated infrastructure investments in China production volume is expected partly due tohave raised hopes of higher metal demand and unfavorable weather conditions in the EU andrising prices. A repeat of the huge infrastructure Russia. Global grain consumption is expected toprograms in 2008/09 seems unlikely, however. remain in line with supply, so inventories shouldn’t rise significantly. In the case of wheat, inventoriesLong-term global demand for iron ore will rise, are expected to shrink. Lower biofuel production isespecially in Asias rapidly growing economies. The included in the forecast and had previously been abiggest iron ore producers in Brazil, Australia and factor in higher food prices. Although food pricesIndia are expanding their capacity. This is also have been weaker than expected, we feel it is toohappening in Sweden, so production volume should early to revise our forecast of higher food prices forincrease in the years ahead. For Sweden’s part, the 2012 when such a large share of the year’sglobal increase in demand for iron ore has meant production still remains. Not until late summer willsubstantial export growth. During the first quarter we see a clear indication of where prices are going.iron ore exports rose in nominal terms by nearly A stronger dollar is also a contributing factor why50% at an annual rate. food prices have been lower than expected.Increased grain production 2012 Gold has lost its lusterIncreased food supplies, especially grain, have The drop in gold prices continued in May despitepushed prices broadly lower. In May Swedbank’s renewed concerns about the global financialfood price index fell by 2.4% in USD and it is now markets. Instead, investor interest in US and 3 (5)
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 6 • 8 June 2012German government bonds has grown At the same time gold demand has declined insubstantially, driving long-term rates down to China and India, which account for the majority ofhistoric lows. physical gold demand. The dollars appreciation is another price-inhibiting factor for gold, which couldGold prices and US government bonds come under further pressure as long as uncertainty about the EMU and euro still remains. On the other hand more expansive monetary policy would drive up the price of gold, especially if the US Federal Reserve again decides to stimulate the economy through liquidity injections should the labor market continue to weaken. The increased liquidity would give a boost to other asset classes, especially gold. That would also increase the fears of rising inflation over time, which usually strengthens investor interest in gold. Jörgen Kennemar
Energy & Commodities Monthly newsletter from Swedbank’s Economic Research Department, continued No. 6 • 8 June 2012Swedbank Commodity Index - US$ - Swedbank Commodity Index - SKr -Basis 2000 = 1oo 14-06-12 Basis 2000 = 1oo 14-06-12 3.2012 4.2012 5.2012 3.2012 4.2012 5.2012T otal index 397,9 384,8 356,6 T otal index 290,6 282,3 272,8 Per cent change month ago 3,2 -3,3 -7,3 Per cent change month ago 4,2 -2,9 -3,3 Per cent change year ago 8,7 -1,1 -2,8 Per cent change year ago 15,2 7,7 9,5T otal index exclusive energy 276,5 273,0 263,0 T otal index exclusive energy 202,0 200,3 201,2 Per cent change month ago -0,1 -1,3 -3,7 Per cent change month ago 0,8 -0,8 0,5 Per cent change year ago -12,3 -17,6 -18,4 Per cent change year ago -7,1 -10,3 -8,1 Food, tropical beverages 261,5 257,7 251,6 Food, tropical beverages 191,0 189,1 192,6 Per cent change month ago -1,7 -1,4 -2,4 Per cent change month ago -0,8 -1,0 1,8 Per cent change year ago -16,3 -17,9 -18,0 Per cent change year ago -11,2 -10,6 -7,6 Cereals 280,1 272,3 264,9 Cereals 204,6 199,8 202,7 Per cent change month ago 0,9 -2,8 -2,7 Per cent change month ago 1,8 -2,4 1,5 Per cent change year ago -7,8 -16,2 -16,9 Per cent change year ago -2,3 -8,8 -6,4 T ropical beverages and tobacco 260,1 248,3 240,8 T ropical beverages and tobacco 190,0 182,2 184,3 Per cent change month ago -5,1 -4,5 -3,0 Per cent change month ago -4,3 -4,1 1,1 Per cent change year ago -22,8 -25,6 -25,4 Per cent change year ago -18,2 -19,0 -16,0 Coffee 167,6 160,4 157,2 Coffee 122,4 117,7 120,3 Per cent change month ago -8,0 -4,3 -2,0 Per cent change month ago -7,1 -3,9 2,2 Per cent change year ago -25,3 -30,4 -31,1 Per cent change year ago -20,8 -24,3 -22,3 Oilseeds and oil 252,3 268,6 266,4 Oilseeds and oil 184,3 197,1 203,9 Per cent change month ago 4,7 6,5 -0,8 Per cent change month ago 5,6 6,9 3,4 Per cent change year ago -4,5 2,1 1,0 Per cent change year ago 1,3 11,1 13,8 Industrial raw materials 280,9 277,4 266,2 Industrial raw materials 205,2 203,5 203,7 Per cent change month ago 0,3 -1,2 -4,0 Per cent change month ago 1,2 -0,8 0,1 Per cent change year ago -11,2 -17,6 -18,6 Per cent change year ago -5,9 -10,3 -8,3 Agricultural raw materials 173,7 174,6 169,6 Agricultural raw materials 126,9 128,1 129,8 Per cent change month ago 1,2 0,5 -2,9 Per cent change month ago 2,1 1,0 1,3 Per cent change year ago -14,4 -16,9 -17,1 Per cent change year ago -9,3 -9,5 -6,6 Cotton 89,8 90,4 79,3 Cotton 65,6 66,3 60,7 Per cent change month ago -2,4 0,7 -12,3 Per cent change month ago -1,5 1,2 -8,5 Per cent change year ago -55,3 -53,2 -48,0 Per cent change year ago -52,6 -49,0 -41,4 Softwood 133,4 135,6 134,0 Softwood 97,4 99,5 102,5 Per cent change month ago 1,5 1,6 -1,2 Per cent change month ago 2,4 2,1 3,1 Per cent change year ago -9,1 -10,6 -13,4 Per cent change year ago -3,7 -2,7 -2,5 W oodpulp 837,0 849,6 852,4 W oodpulp 611,4 623,3 652,3 Per cent change month ago 1,0 1,5 0,3 Per cent change month ago 1,9 2,0 4,6 Per cent change year ago -13,2 -14,4 -15,6 Per cent change year ago -8,0 -6,8 -4,9 N on-ferrous metals 249,9 239,2 231,4 N on-ferrous metals 182,5 175,5 177,1 Per cent change month ago -1,5 -4,3 -3,3 Per cent change month ago -0,6 -3,9 0,9 Per cent change year ago -15,7 -20,8 -19,5 Per cent change year ago -10,6 -13,8 -9,3 Copper 8456,6 8258,8 7927,3 Copper 6177,0 6059,4 6066,1 Per cent change month ago 0,5 -2,3 -4,0 Per cent change month ago 1,4 -1,9 0,1 Per cent change year ago -11,3 -12,9 -11,5 Per cent change year ago -5,9 -5,1 -0,3 Aluminium 2182,6 2046,7 2000,5 Aluminium 1594,2 1501,7 1530,8 Per cent change month ago -0,9 -6,2 -2,3 Per cent change month ago 0,0 -5,8 1,9 Per cent change year ago -14,5 -23,1 -22,8 Per cent change year ago -9,4 -16,3 -13,1 Lead 2061,0 2062,4 2001,7 Lead 1505,4 1513,2 1531,7 Per cent change month ago -3,0 0,1 -2,9 Per cent change month ago -2,1 0,5 1,2 Per cent change year ago -21,4 -24,4 -17,6 Per cent change year ago -16,7 -17,7 -7,2 Z inc 2034,2 1997,0 1930,8 Z inc 1485,9 1465,2 1477,5 Per cent change month ago -1,1 -1,8 -3,3 Per cent change month ago -0,2 -1,4 0,8 Per cent change year ago -13,4 -15,5 -10,9 Per cent change year ago -8,2 -8,0 0,4 Nickel 18705,6 17877,8 17017,8 N ickel 13663,2 13116,9 13022,3 Per cent change month ago -8,5 -4,4 -4,8 Per cent change month ago -7,7 -4,0 -0,7 Per cent change year ago -30,2 -32,1 -29,9 Per cent change year ago -26,0 -26,1 -21,0 Iron ore, steel scrap 642,1 647,7 611,4 Iron ore, steel scrap 469,0 475,2 467,9 Per cent change month ago 1,7 0,9 -5,6 Per cent change month ago 2,6 1,3 -1,5 Per cent change year ago -3,1 -14,5 -18,6 Per cent change year ago 2,7 -6,9 -8,3 Energy raw materials 451,7 434,3 398,1 Energy raw materials 330,0 318,7 304,6 Per cent change month ago 4,2 -3,8 -8,3 Per cent change month ago 5,1 -3,4 -4,4 Per cent change year ago 16,2 4,8 2,9 Per cent change year ago 23,2 14,1 16,0 Coking coal 406,5 393,8 369,2 Coking coal 296,9 288,9 282,5 Per cent change month ago -7,1 -3,1 -6,2 Per cent change month ago -6,3 -2,7 -2,2 Per cent change year ago -15,1 -16,5 -19,6 Per cent change year ago -10,0 -9,1 -9,4 Crude oil 453,8 436,2 399,4 Crude oil 331,5 320,0 305,6 Per cent change month ago 4,7 -3,9 -8,4 Per cent change month ago 5,7 -3,4 -4,5 Per cent change year ago 18,0 5,9 4,2 Per cent change year ago 25,1 15,3 17,3Source : SW ED BANK and HW W A-Institute for Economic Research Hamburg Source : SW ED BAN K and H W W A-Institute for Economic R esearch H amburgSwedbankEconomic 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)