The World Bank’s commodity price index continued to fall with the energy index plummeting 7.6% m-o-m in May, compared to a 3.5% fall in April. The non-energy price index dropped 2.5% m-o-m in May, compared to a milder 0.3% decrease in the previous month. Food prices declined by 2.1%, while base metals and gold were down by 3.8% and 3.5%, respectively. In May, commodity prices continued to fall due to a firmer dollar, risk aversion, macroeconomic uncertainty and apprehension over the Euro-zone’s sovereign debt crisis, as well as slower-than expected growth in emerging economies, especially China and India.
The Henry Hub (HH) natural gas price jumped 25.2% m-o-m in May compared to a 10% fall in April. The price rise was caused by an easing of the storage overhang from late April to the first half of May. There was a record high amount of coal displacement, as well as prospects of flat-to dropping production levels. Volatile weather patterns in the US — cold-hot-cold — were also a bullish factor. US natural gas prices weakened in the last week of May as the month-long short covering rally likely came to an end.
A storage injection in line with consensus took place. Nevertheless, although the storage overhang was further reduced to last year’s level, it implied a slight slowdown in coal displacement compared with previous weeks. The agricultural price index fell 1.7% m-o-m in May, compared to a 0.1% increase in the previous month.
Most agricultural commodities were driven by ongoing macroeconomic uncertainties, the Euro-zone’s public debt crisis, downgraded global growth and risk aversion. Soybean prices continue to lead the grain complex with soybean meal rising 7.1% m-o-m in May, while corn and wheat continued to decline, albeit at a slower pace.
As usual, agricultural prices were influenced by weather projections. In the first week of May, data from the US Department of Agriculture’s World Agricultural Supply and Demand Estimates (WASDE) report was bullish for soybeans and bearish for corn. Soybean prices are likely to remain the leader of the CBOT Dow Complex. Moving on the impact of Chinese agricultural imports on the grain complex prices, April trade data indicated that China’s corn and wheat imports eased on a monthly basis. Cocoa and coffee were up 2% and 5%, respectively, m-o-m in May. Due to weather concerns about May, Chinese imports in April were bullish for these commodities.
The World Bank’s base metal price index continued to decline, falling 3.8% m-o-m in May, compared to 3.1% the previous month, with the drop being felt across the whole complex. Copper and aluminium declined by 4.0% and 2.1%, respectively, m-o-m. Base metal prices on the whole were affected by macroeconomic fears, political uncertainty in Europe, and on-going concerns regarding contagion and a sovereign debt default in Europe. Risk aversion has also weighed on further price deterioration. There was a further easing of base metal imports from China, with copper imports falling 22% m-o-m accompanied by a strong rise in exports. Aluminium imports also eased.
Worsening perspectives on global growth, particularly concerning Europe and China, have led to a broad sell-off in base metals. The short-term outlook for base metal markets is bearish, owing to a complex macroeconomic outlook. Since base metals are the commodities most closely linked to the global industrial cycle, no improvements in these markets is expected until some evidence of progress at the macro level takes place, especially with regard to growth in China and the implementation of sound policies by European policymakers.
Gold prices tumbled by 3.5% m-o-m in May, compared to a 1.4% loss in the previous month. Gold and the whole precious metal complex were impacted by negative market sentiments and a sell-off in risky assets, despite gold’s traditional role as a safe-haven investment. The dollar’s appreciation against other major currencies also added to the downward trend seen in gold markets during May.