Average commodity prices were mixed in August. Increases in energy
commodities were led by higher oil and coal prices. Among non-energy
commodities, declines in the agriculture group were led by lower food prices on
the expectation of plentiful grain supplies, while base metals showed mixed price
developments during the month. Average gold prices remained stable as the
probability of a rate hike in the US did not change significantly during the month.
Trends in selected commodity markets
Continuing favourable weather for crop developments in the US has continued to
support expectations of plentiful grain supplies, which has pressured food prices during
the month. Meanwhile, readings of industrial output in largest metal consumer China
showing a slight slowdown to 6.0% y-o-y expansion in July from 6.2% y-o-y in Juneaccording
to the National Bureau of Statistics – diminished support for base metals.
Gold prices remained relatively stable during the month as market expectations for an
increase in interest rates was relatively stable during the month.
Agricultural prices declined on top of expectations of record grains production.
Favourable weather for crop developments, as reported by the US Department of
Agriculture (USDA), translated into even higher output forecasts for maize, soybeans
and wheat. Moreover, the USDA also increased its projections for wheat output in
Russia, Kazakhstan and Ukraine, which compensated for the expected large reduction
in EU output, thereby pushing wheat prices to 10-year lows. Meanwhile, palm oil prices
rebounded as the Malaysian Palm Oil Board reported increases of 21% in exports for
the month of July, which decreased overall inventory levels.
Metals prices were mixed with declines in copper and lead, while other base metals
advanced. In spite of the slight slowdown in industrial production in China, support was
still provided by continuing strength in the Chinese housing market as shown by
advances in the prices of newly constructed residential buildings which increased in 51
of the largest 70 cities in July, though at a slower pace than in the previous month
when prices increased in 55 of those cities, according to the National Bureau of
Statistics. Nonetheless, copper was under pressure due to an average m-o-m jump of
around 40% in inventories on the London Metal Exchange. Meanwhile, iron ore
increased by 7%, supported by larger Chinese imports – 9.3% higher than a year ago
in the first eight months of 2016, according to the General Administration of Customs.
Global steel output rose by 1.4% in July and steel output in the world’s largest
producer, China, increased by 2.6% in the same period, according to the World Steel
Association.
Energy prices increased on average in August due to advances in average crude oil
and coal prices. However, natural gas prices declined during the month in Europe and
were marginally down in the US. In Europe, prices generally decreased on persistent
oversupply. Total inventories in EU member states were around 83% at the end of the
month, versus around 74% during the previous month, according to the new
methodology of reporting inventories provided by Gas Infrastructure Europe.
Meanwhile, in the US, energy prices were stable. Higher power demand this summer
due to warmer-than-average temperatures and low prices have continued to translate
into smaller-than-average additions to underground storage – and a reduction in the
stock overhang, though some moderation in temperatures during the month weighed
on prices.
Average energy prices in August increased by 1.8% m-o-m, led by a 1.7% increase in
average crude oil prices. Natural gas prices decreased in the US slightly by 0.1% m-om,
while average prices in Europe decreased by 0.9%.
Agricultural prices decreased by 0.9%, mainly due to a 1.2% decline in average food
prices and a 1.1% decline in beverage prices, while raw material prices were mainly
unchanged. Maize and soybean meal led the decrease in food prices, with the two
products down by 6.9% and 8.4%, respectively.
Average base metal prices decreased by 0.2%, mainly due to a 2.2% decrease in
copper prices. Prices of aluminium, nickel and zinc advanced by 0.8%, 1.0% and 4.3%,
respectively. Average iron ore prices advanced by 7.0% and are 49% above December
2005 levels.
In the group of precious metals, gold prices advanced slightly by 0.3% as the outlook
for interest rates was stable in the US, while silver prices declined by 2%.
In August, the Henry Hub natural gas index was relatively stable. The average price
was down 1¢, or 0.1%, to $2.78 per million British thermal units (mmbtu) after trading at
an average of $2.79/mmbtu the previous month.
The US Energy Information Administration (EIA) said utilities added 51 billion cubic feet
(bcf) of gas to storage during the week ending 26 August. This was in above median
analysts’ expectations of an increase around 42 bcf. Total working gas in storage stood
at 3,401 bcf, or 7.5%, higher than at the same time the previous year and 10.9% higher
than the previous five-year average. The EIA noted that temperatures during the
reported week were higher than normal throughout the Lower 48 States.
Investment flows into commodities
Open interest volume (OIV) decreased in July for select US commodity markets such
as agriculture, crude oil, natural gas and copper, while it increased for precious metals
and livestock. Meanwhile, as the monthly average speculative net length positions
increased for crude oil and livestock, they declined for agriculture, copper and precious
metals, and were mainly stable for natural gas.
Agriculture’s OIV decreased by 0.5% to 4,941,368 contracts in August. Meanwhile,
money managers decreased their net long positions by 28.6% to 281,921 lots, largely
because of increasing net length in corn for the second consecutive month.
Henry Hub’s natural gas OIV increased by 4.1% m-o-m to 1,053,788 contracts in
August. Money managers increased their net short positions slightly by 0.3% to reach
36,961 lots on moderating temperatures.
Copper’s OIV increased by 7.6% m-o-m to 187,337 contracts in August. Money
managers switched to a net short position of 2,825 lots from a net long position of
14,130 on slowing momentum in manufacturing in the US and China, while inventories
also increased.
Precious metals’ OIV decreased by 6.7% m-o-m to 779,649 contracts in August.
Money managers decreased their net long positions by 5.6% to 326,948 lots.
