Commodities and Energy

Transcription

1 Macro Research 24 October, 2016 Commodities and Energy Tentative commodity markets OPEC s production cut is the focus of attention Sluggish investment keeps a lid on metal prices Commodity prices slowly begin to contribute to global inflation Commodity prices are trending slightly higher, but the upward momentum has slowed this fall. We expect the price-dampening effect of commodities on global inflation to ease, and instead anticipate a positive contribution in 2017, not least due to base effects. Swedbank s Commodity Price Index was unchanged in September versus August, while the index excluding energy commodities fell by 0.8%. On an annualized basis, the index has risen by 3.5% from September 2015 and by 0.4% excluding energy commodities. Higher oil and coal prices are the main reason for the increase. In September oil prices climbed by an average of 1%, but it wasn t until the end of the month that the price rise became apparent, when the OPEC countries agreed to cut output by barrels per day. Coal prices have trended even higher, up by 4.7% in September, or by 25.2% in annualized terms. Metal prices fell in September, while food prices turned higher after having fallen in July and August. The price of gold continued to rise in the wake of low interest rates and cautious central banks. Commodity Price Index and gold price, 2014=100 Swedbank s Commodity Price Index, 2015=100 Jörgen Kennemar Senior Economist jorgen.kennemar@swedbank.se +46 (0) Completed: October 24, 2016, 09:55, Please see important disclosures at the end of this document, Disseminated: October 24, 2016, 09:55, Page 1 of 6

2 Oil market focus on OPEC OPEC s decision to cut oil output has raised expectations of higher prices going forward. Expected production cuts and shrinking inventories are likely to drive up oil prices in 2016/17. Uncertainty about whether OPEC will be able to actually implement these cutbacks is a downside risk in the price forecast, however. Production cuts and lower inventories For the first time since 2008 the OPEC member-countries were able to agree on production cuts of barrels per day. This would reduce OPEC s production to million barrels per day. In September the production volume reached a record-high 33.6 million barrels. Non-OPEC countries, led by Russia, support the cuts. How much each member country will reduce its production won t be evident, however, until the scheduled OPEC meeting on November 30. In other words, only time will tell whether the agreement becomes a reality. Otherwise, there is a risk that prices will be pushed lower, at least in the short term. Iran, which has opposed the cuts, has been permitted to continue to raise production. Ensuring compliance with the agreement is another challenge. Historically, member-countries output has exceeded the agreed-upon quotas. Global oil production increased in September, according to the International Energy Agency (IEA). The biggest rise came from the OPEC countries, driven by Iraq and Libya. Russian oil production also jumped, reaching a record-high 11.1 million barrels per day. At the same time global consumption grew, but at a slower rate due to sluggish economic conditions and lower subsidized consumption in several emerging countries. This year and next consumption is expected to grow by 1.2 million barrels per day, according to IEA, down by half from last year. At the same time global production for 2016 is expected to fall by nearly 1 million barrels per day. For 2017 IEA expects production to rise by nearly 0.5 million barrels, which may be optimistic against the backdrop of a decrease in the oil industry s investments. US oil production and inventories Swedbank s oil price forecast Oil production within and outside OPEC Expectations of further production cuts and shrinking US oil inventories have given oil prices support this fall (USD 52 on average in October). The average price of Brent crude so far this year is USD 44 per barrel, in line with our full-year forecast of USD 45 per barrel. Next year we expect supply cutbacks in the US and OPEC to push prices up to USD 61 on average, implying a price of around USD 70 per barrel by the end of Uncertainty about oil prices and when the market will find a balance still persists. While inventories have shrunk in the US and other countries, inventory levels remain historically high. An increase in the number of US oil rigs in operation this fall, output that isn t falling as fast as before and global consumption that s stuck in the mud, according to IEA estimates, raise the risk that it could take longer than previously expected to achieve a balance in the market. Finding such a balance this half-year, after last year saw a surplus of 2 million barrels per day, seems overly optimistic. Completed: October 24, 2016, 09:55, Please see important disclosures at the end of this document, Disseminated: October 24, 2016, 09:55, Page 2 of 6

3 Metal prices have bottomed out Metal prices have stabilized at low levels and are recovering more slowly than expected. A sluggish global economy and weak investment are restraining demand and keeping metal prices in check. Shrinking metal inventories Prices of industrial metals have bottomed out and are showing signs of a slight recovery. In September, however, Swedbank s price index for nonferrous metals fell by 1.3% compared with August. Price trends differ by metal. Copper and nickel prices dropped, while zinc, lead and aluminum rose. The rise in metal prices is supported by lower inventories, but here as well there are significant differences between metals. Copper stocks have risen back to levels last seen a year ago. Zinc stocks have gone in the opposite direction and fallen to the lowest levels in over five years, which has helped to support prices. Production and export caps on nickel, including by Filipino producers, have reduced high levels of inventories, giving support to nickel prices. The price of iron ore, which bottomed out in January at USD 40 per ton, rose significantly in the subsequent months and reached nearly USD 70 per ton in April before retreating to just under USD 60 per ton. The price gains rest on a shaky foundation, however, and in September the prices fell by 6.1% from August. Overcapacity is still significant at the same time as new production capacity for iron ore is being added, with a risk that prices could fall further in the short term. Major South American and Australian mining companies have announced their intention to expand production capacity. Besides the comparative advantages this offers relative to high-cost producers, the capacity expansion may be rooted in strategic reasons to gain or retain a global market share. Continued weak global investment suggests modest demand for metals in and a limited price rise. The current rebalancing of the Chinese economy has led to less commodity-intensive growth. Industrial production is growing a more modest 5-6% on an annualized basis at the same time that lower investment growth is reducing demand for metals and other inputs. Chinese steel consumption, which fell substantially in 2015, is expected to continue to decline this year and next, according to the World Steel Association, unless further stimulus measures are announced. As a result, pressure on production cuts and productivity improvements will remain a focus, especially for high-cost producers. We expect prices of industrial metals excluding iron ore to rise over the course of the year, but don t see them reaching last year s levels. The average price is expected to fall by 6-8% in USD. So far this year metal prices have dropped 11% on average compared with the same period in For 2017 we estimate that prices will rise by 5-8% on average, not least due to base effects, but also driven by lower production and increased demand. Nickel, USD and millions of tons Zinc, USD and millions of tons Copper, USD and millions of tons Iron ore, USD Completed: October 24, 2016, 09:55, Please see important disclosures at the end of this document, Disseminated: October 24, 2016, 09:55, Page 3 of 6

4 Food prices start to slow Grain prices have reached ten-year lows. A big increase in grain production and large inventories will keep prices under pressure going forward. Continued high grain production The rise in food prices this past spring and summer has leveled off despite a slight recovery in September, (+1.2% m/m). Grain prices remain under pressure and fell again in September. In the last twelve months they have dropped by just over 9% in USD, reaching the lowest levels in 10 years. Prices of oilseeds such as soybeans and rapeseed have fallen after rising last spring partly thanks to better harvests. Prices of tropical beverages, which include coffee and tea, headed in the opposite direction, rising by 3.6% in September, up over 20% in twelve months. Unfavorable weather conditions are the main reason for the big price jump. Sugar is another food commodity whose price has risen significantly, in its case due to unfavorable weather conditions in South America and lower production in Asia. Sugar prices are also being driven by lower Brazilian exports (35% of global total), since the appreciation of the country s currency (the real) has increased the incentive to raise ethanol production. Food prices, 2010=100 Rapeseed and crude oil prices, y/y (%) Upward revisions in global grain production forecasts from already high levels and large inventories suggest continued low prices. The UN s Food and Agriculture Organization (FAO) has revised this year s output substantially higher, by over three million tons compared with its last forecast in September. The biggest upward revisions are for wheat and rice. Consistently low prices and rising energy prices reduce the incentive to raise production, however, which could eventually support prices. Less downside pressure on inflation from commodity market Commodity prices are not expected to have as much of a dampening effect on global inflation as markets stabilize. This would provide some support for central banks and mean less need for further monetary stimulus. The most obvious effect will be through higher oil prices, especially in the first half of 2017, when base effects become evident as oil prices are compared with the low levels in early Other commodities are expected to have less impact on inflation, since overcapacity remains an issue. The reversal toward a stronger dollar puts downward pressure on commodity prices, however, with a risk of lower inflation impulses from commodity markets. Completed: October 24, 2016, 09:55, Please see important disclosures at the end of this document, Disseminated: October 24, 2016, 09:55, Page 4 of 6

5 Swedbank s Commodity Price Index Swedbank Commodity Index - US$ - Basis 2015 = 1oo Total index 91,7 92,8 92,8 Per cent change month ago -3,9 1,1 0,0 Per cent change year ago -12,3 0,3 0,4 Total index exclusive energy 99,0 99,3 98,4 Per cent change month ago 1,8 0,2-0,8 Per cent change year ago -0,8 3,6 3,5 Food, tropical beverages 107,6 105,4 106,6 Per cent change month ago -2,2-2,0 1,2 Per cent change year ago 5,6 8,5 13,3 Cereals 92,1 87,9 86,9 Per cent change month ago -11,2-4,6-1,1 Per cent change year ago -13,0-8,9-9,3 Tropical beverages and tobacco 110,5 109,7 113,6 Per cent change month ago 3,0-0,7 3,6 Per cent change year ago 12,5 13,8 21,2 Coffee 1,3 1,3 1,4 Per cent change month ago 4,7-1,5 5,6 Per cent change year ago 11,0 8,0 22,2 Oilseeds and oil 111,4 107,5 104,6 Per cent change month ago -7,1-3,5-2,7 Per cent change year ago 4,1 8,7 11,3 Industrial raw materials 96,6 97,5 96,1 Per cent change month ago 3,1 1,0-1,5 Per cent change year ago -2,7 2,1 0,8 Agricultural raw materials 96,7 97,1 97,4 Per cent change month ago 0,6 0,4 0,3 Per cent change year ago -4,5-0,2 2,1 Cotton 0,7 0,7 0,7 Per cent change month ago 9,7-0,2-1,9 Per cent change year ago 7,5 7,7 11,6 Softwood 97,6 97,8 95,6 Per cent change month ago -0,3 0,2-2,2 Per cent change year ago -1,5-0,8-2,3 W oodpulp 811,3 811,8 810,1 Per cent change month ago 0,9 0,1-0,2 Per cent change year ago -4,7-4,1-3,5 Non-ferrous metals 94,9 95,0 93,8 Per cent change month ago 4,7 0,1-1,3 Per cent change year ago -3,7 2,8-0,2 Copper 4855,8 5088,9 4707,2 Per cent change month ago 4,9 4,8-7,5 Per cent change year ago -11,0 0,0-9,6 Aluminium 1629,8 1539,8 1590,0 Per cent change month ago 2,4-5,5 3,3 Per cent change year ago -0,5 0,0 0,1 Lead 1834,9 1692,9 1942,0 Per cent change month ago 7,1-7,7 14,7 Per cent change year ago 4,1 0,0 15,5 Zinc 2184,8 1809,9 2292,8 Per cent change month ago 8,0-17,2 26,7 Per cent change year ago 9,1 0,0 33,4 Nickel 10251, , ,4 Per cent change month ago 15,0 0,9-1,5 Per cent change year ago -10,0 0,0 2,9 Iron ore, steel scrap 100,9 105,5 99,0 Per cent change month ago 5,2 4,6-6,2 Per cent change year ago 4,7 6,2 0,1 Energy raw materials 88,5 89,9 90,3 Per cent change month ago -6,5 1,6 0,5 Per cent change year ago -17,1-1,2-1,0 Coking coal 103,7 114,3 119,7 Per cent change month ago 10,9 10,2 4,7 Per cent change year ago 2,3 15,9 25,2 Crude oil 87,8 88,8 89,0 Per cent change month ago -7,3 1,1 0,2 Per cent change year ago -17,9-2,1-2,3 Source : SW EDBANK and HW W A-Institute for Economic Research Hamburg Swedbank Commodity Index - SKr - Basis 2015 = 1oo Total index 93,3 93,2 94,0 Per cent change month ago -0,9 0,0 0,9 Per cent change year ago -11,9-0,6 2,6 Total index exclusive energy 100,7 99,7 99,7 Per cent change month ago 5,0-0,9 0,0 Per cent change year ago -0,4 2,6 5,8 Food, tropical beverages 109,3 105,9 108,0 Per cent change month ago 0,9-3,2 2,0 Per cent change year ago 6,1 7,5 15,7 Cereals 93,6 88,3 88,0 Per cent change month ago -8,4-5,7-0,3 Per cent change year ago -12,6-9,8-7,3 Tropical beverages and tobacco 112,3 110,2 115,1 Per cent change month ago 6,2-1,9 4,4 Per cent change year ago 13,1 12,7 23,8 Coffee 1,4 1,3 1,4 Per cent change month ago 7,9-2,7 6,4 Per cent change year ago 11,6 7,0 24,8 Oilseeds and oil 113,3 108,0 106,0 Per cent change month ago -4,2-4,6-1,9 Per cent change year ago 4,6 7,7 13,7 Industrial raw materials 98,2 98,0 97,3 Per cent change month ago 6,4-0,2-0,7 Per cent change year ago -2,3 1,2 2,9 Agricultural raw materials 98,3 97,6 98,7 Per cent change month ago 3,8-0,8 1,1 Per cent change year ago -4,1-1,1 4,3 Cotton 0,7 0,7 0,7 Per cent change month ago 13,1-1,3-1,1 Per cent change year ago 8,0 6,7 14,0 Softwood 99,2 98,3 96,8 Per cent change month ago 2,8-1,0-1,4 Per cent change year ago -1,1-1,7-0,2 W oodpulp 824,8 815,7 820,7 Per cent change month ago 4,0-1,1 0,6 Per cent change year ago -4,3-5,0-1,4 Non-ferrous metals 96,5 95,5 95,0 Per cent change month ago 8,0-1,1-0,4 Per cent change year ago -3,2 1,9 1,9 Copper 4936,4 5113,1 4768,6 Per cent change month ago 8,1 3,6-6,7 Per cent change year ago -10,6-0,9-7,7 Aluminium 1656,9 1547,1 1610,7 Per cent change month ago 5,6-6,6 4,1 Per cent change year ago 0,0-0,9 2,2 Lead 1865,4 1700,9 1967,4 Per cent change month ago 10,4-8,8 15,7 Per cent change year ago 4,6-0,9 17,9 Zinc 2221,1 1818,5 2322,7 Per cent change month ago 11,4-18,1 27,7 Per cent change year ago 9,6-0,9 36,3 Nickel 10422, , ,4 Per cent change month ago 18,6-0,3-0,7 Per cent change year ago -9,5-0,9 5,1 Iron ore, steel scrap 102,6 106,0 100,3 Per cent change month ago 8,5 3,3-5,4 Per cent change year ago 5,2 5,2 2,3 Energy raw materials 90,0 90,3 91,5 Per cent change month ago -3,6 0,4 1,3 Per cent change year ago -16,7-2,2 1,1 Coking coal 105,4 114,8 121,3 Per cent change month ago 14,4 8,9 5,6 Per cent change year ago 2,7 14,8 27,9 Crude oil 89,3 89,2 90,2 Per cent change month ago -4,4 0,0 1,1 Per cent change year ago -17,6-3,0-0,2 Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg Completed: October 24, 2016, 09:55, Please see important disclosures at the end of this document, Disseminated: October 24, 2016, 09:55, Page 5 of 6

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