Trends in Selected Commodity Markets - September 2016

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.