Energy commodity prices generally increased in October, led by higher crude oil prices. Natural gas prices showed mixed trends, decreasing in the US, but advancing in Europe while coal prices remained relatively stable. Base metal prices reached the highest levels since October 2014, with further gains in global manufacturing. Gold prices declined on the increasing likelihood of interest rate hikes by the US Federal Reserve in December.
Trends in selected commodity markets
Average energy prices increased by around 3.3% in October and have been around 24.4% higher in the January-to-October period compared with the previous year.
In October, the Henry Hub natural gas index was down by 10?, or 2.7%, to $2.86/mmbtu, after trading at an average of $2.96/mmbtu in the previous month. Average prices have ranged between $2.9 and $3.1/mmbtu since June. The EIA said utilities added 65 bcf of working gas to underground storage during the week ending 27 October 2017. This was above the median 60 bcf injection expected by analysts. Total working gas in underground storage stood at 3,775 bcf, 4.6% lower than at the same time the previous year, and 1.1% lower than the previous five-year average. In October, the US Climate Prediction Centre (CPC) issued a La Nina advisory with a 65%-75% chance through winter in the Northern hemisphere. This phenomenon is normally associated with below average temperatures in the northernmost regions of the US and the opposite pattern in the southernmost regions of the country. Natural gas prices in Europe increased with average prices up by 10% to $6.08/mmbtu. Natural gas inventories for EU Member States increased to 89.9% full at the end of September from 84.6% in the previous month, slightly below last year’s end-of-September inventories at 90.6%, according to data from Gas Infrastructure Europe.
Australian thermal coal prices advanced slightly to $97.1/mt. Raw coal output in China in September was 7.6% higher y-o-y versus 4.1% higher y-o-y a month earlier, however output is expected to decelerate in the following month, due to a push by the government of China to reduce pollution during winter months. As many other heavy industries are expected to limit their output as well, coal demand will likely decelerate. The last available import data shows a decline in Chinese coal imports to 21.3 million mt in October, from 27.1 million mt in September, though this year they are still 12% higher in the first 10 months, compared to the previous year.
During the month, average base metal prices increased by 2.7% reaching the group index highest since August 2014, supported by continuing strength in global manufacturing. The JP Morgan global manufacturing PMI advanced to a 78-month high of 53.5 in October, on further improvements in activity in the US and the Euro-zone, amid stability in China. At the same time, previous concerns of some deceleration in China Industrial Production receded after readings for the month of September showed 6.6% y-o-y advance in the activity versus 6.0% a month earlier. Nickel prices advanced by 5.2%, buoyed by expectations of increasing global use for stainless steel melting, which increased by 5% in the first half of the year, according to the Nickel Study Group.
Meanwhile, gold prices retreated on average by 2.6%, largely due to increasing expectations for an additional interest rate hike by the US Federal Reserve in December, while receding geopolitical concerns also have played a part since mid-September.
Investment flows into commodities
OI increased in October for selected US commodity futures markets such as natural gas and crude oil, while declining for precious metals and copper. Meanwhile, in monthly terms, speculative net length positions increased for crude oil, while declining for natural gas, precious metals and copper.
Henry Hub’s natural gas OI increased by 4.5% m-o-m in October. Money managers decreased their net length by 56% to 44,009 contracts on forecasts of milder-than-expected weather at the end of the month.
Copper’s OI decreased by 2.5% m-o-m in October. Money managers decreased their net long positions by 6.4% to 109,000 contracts in September. Nonetheless, money manager net length is still the third highest on record.
Precious metals’ OI decreased by 4.9% in October. Money managers decreased their bullish bets sharply following expectations of higher interest rates in the US. Their net long positions declined by 22.2% during the month to 230,000 contracts.