Monthly newsletter from Swedbank s Economic Research Department by Jörgen Kennemar No April 2011

Transcription

1 Monthly newsletter from Swedbank s Economic Research Department by Jörgen Kennemar No April 2011 Inflation concerns and austerity challenges for the commodity market Swedbank s Total Commodity Price in USD rose in March to the highest level since August 8 driven by a substantial increase in oil prices. Excluding energy commodities, the price index fell by 1.4%, marking the first decline in over a half-year. In SEK and euro, which rose against the dollar, the price drop was greater for both metals and food commodities. Investments in precious metals have seen renewed interest in the wake of high oil prices and increased inflation concerns. The weakening of the dollar in 2011 and expansive US economic policies are another factor that could drive up the price of gold and silver to new record levels in nominal terms. The pricing picture could change quickly, however, if US monetary policy becomes less expansive and the central bank s liquidity stimulating measures are phased out. The rise in metal prices slowed in March, with nickel, zinc and copper accounting for the largest decline, though from high levels. The slowdown in Chinese commodity imports and production cutbacks in Japan following the earthquake in March are contributing reasons, at the same time that investment capital is turning to precious metals rather than economically sensitive industrial metals due to increased inflation concerns. Swedbank s Total Commodity Price, USD Total index Food Total excl energy commodities Metals Source: Swedbank I dessa två spalter klistras tabellerna in från Råvaruprisindex The political unrest in North Africa and the countries bordering Saudi Arabia is clearly having an impact on the global commodity market. This is especially true of the price of Brent oil, which at the time of Economic Research Department. Swedbank AB. SE Stockholm. Phone ek.sekr@swedbank.se Legally responsible publisher: Cecilia Hermansson Magnus Alvesson Jörgen Kennemar

2 writing was fluctuating around USD 120- per barrel. On average, the price of oil in USD rose by 11.3% in March, which was one reason why energy accounted for the large part of the increase in Swedbank s Total Commodity Price. In total, the index rose by 7.2% in March compared with the previous month, reaching its highest level since August 8. The increase was 5.4% in euro and 5.7% in SEK. Concerns about future oil supplies have led to skyrocketing oil prices at the same time that global demand is expected to rise by 1.5 million barrels a day in 2011 after last year's increase of 2.5 million barrels. In Japan, the world's second largest oil importer, fossil fuel consumption will rise as long as the nuclear power problem persists, which could take several years. As a whole, this means that supply conditions in the oil market are tightening, because of which oil inventories in OECD countries will fall from today's relatively high levels Swedbank s Commodity Price in various currencies EUR SEK crisis remains unresolved in several EMU countries. A move by the EMU countries to speed up monetary austerity at the same time that the US central bank, the Federal Reserve (Fed), puts off any rate hikes is contributing to the weaker dollar. The risk of a further decline in the dollar increases if expansive fiscal policy in the US continues at the same time that the Fed waits to raise interest rates, while rates are expected to rise in Europe. This would push commodity prices including oil higher. The other important energy commodity, coal, which rose substantially in price last year in connection with the major floods in Australia, has trended slightly lower in recent months. Against the backdrop of high oil prices and the risk of supply disruptions, it is likely that coal prices will rise in the months ahead as demand for coal grows as a replacement for crude oil. Coal is the most commonly used energy resource in energy-intensive emerging economies led by China and India. There is also a clear connection between the prices of oil and coal, where higher oil prices drives up the price of coal. But since coal prices are negotiated between coal and steel producers rather than set by daily listings on financial markets, the substantial recent rise in oil prices is not yet reflected in coal prices m m1 2010m2 2010m3 2010m4 2010m5 2010m6 2010m7 2010m8 2010m9 2010m m m m1 2011m2 2011m3 As long as geopolitical uncertainty continues in the Middle East, the prospects of a major decline in oil prices are less likely, because of which the risk that oil prices will average more than USD 105, as we forecast this year in our latest economic outlook, is high. This is also reflected in oil futures, which have risen in the past month from USD 112 dollar per barrel to USD 118 for delivery in December Like many other commodities, oil is also affected by exchange rates and the fact that the dollar has trended lower against the euro in 2011 despite that the US economy is experiencing a faster growth rate while the sovereign debt USD Metal price increase slows The major increase in oil prices in March contrasts with other commodities in Swedbank s Total Commodity Price. Excluding energy, the index rose in USD by 1.4% in March compared with February. This is the first time since June 2010 that the index has fallen and the second month in a row in SEK. The decline was driven by lower metal and food prices, though from high levels. Among metals, nickel had the largest price decline, at 5.1% in USD, followed by zinc (- 4.7%) and copper (-3.4%). Slightly lower metal prices have been followed by rising inventories, which raises the question of how much Chinese metal consumption will weaken due to the economic austerity measures authorities there have taken to avoid an overheating. In March copper inventories reached their highest level since July 2010, 2 (6)

3 contrary to the market's expectations of a copper shortage, which probably drove up the price to a record-high USD per ton in early February. Iron ore prices were largely unchanged in March in Swedbank s Total Commodity Price in USD, but fell slightly in SEK. In the short term iron ore prices are under pressure from reduced Japanese steel production in the wake of the disaster, at the same time that the supply of Indian steel is rising. When reconstruction in Japan begins, however, demand for iron ore will increase, which should also drive up the prices of iron ore and steel Metal and oil price trends in USD, Non-ferrous metals Crude oil, brent The fact that copper prices again rose in April when major producers predicted a lower supply at the World Copper Conference in Santiago is a sign of the volatility affecting the economically sensitive metals market, where developments in China are of major importance. Although Chinese commodity imports also rose substantially in March compared with the previous month, the annual growth rate is slower, in line with the lower GDP growth we predict for the Chinese economy in the year ahead. We expect that the increase in metal prices in USD, which averaged slightly over 40% in 2010, will be significantly lower this year (5-10%), when last year's global inventory build-up slows at the same time that economic policies are tightened in emerging economies and the majority of OECD countries. Metal prices should also come under pressure from a growing investment inflow to precious metals (gold and silver), especially industrial metals due to increased inflation concerns. Rising production costs owing to the high price of oil are a counterbalance, however, which could push metal prices higher, not least aluminium, where energy consumption is high, accounting for slightly over one third of the total production cost. Since 9 the covariation between metal prices and oil has been clear. During the first months of the year this pattern has changed, however, as oil prices have risen significantly faster than metal prices. Inflation concerns are driving up the price of gold Investor interest in gold rose again in February and March after a slight decline in January. Geopolitical developments in the Middle East, with the risk of persistently high oil prices and higher future inflation, have driven up the price of gold to new record levels in nominal terms. At the time of writing, the price of gold is USD per ounce, an increase of slightly over 10% since the end of January. Gold has also risen in SEK and euro, but is still lower than at the start of the year jan Price development for gold and silver in USD,, 1 january 2010= feb mar apr maj jun jul aug sep okt nov dec jan 10 Gold Silver feb mar apr 11 Despite the recovery, the price of gold has still risen considerably less than silver, which is increasingly regarded by investors as an alternative to gold. At the same time silver consumption in industrial production is growing in everything from electronics to textiles. The 50% price rise in just two months should serve as a warning signal for a future silver bubble, however. High oil prices, rising inflation, the sovereign debt crisis in southern Europe and continued though modest monetary austerity suggest that gold and silver prices will remain high going forward. On the other hand, a US 3 (6)

4 interest rate hike significantly higher than 1.50% in late 2012 and a considerably stronger dollar could hold precious metal prices in check in the longer term Gold price trend in various currencies, 1 January 2010= 1 January 2010= jan feb mar apr maj jun jul aug sep okt nov dec jan feb mar apr SEK EUR USD rising purchasing power. According to a forecast by the US Department of Agriculture (USDA), the increase in global agricultural production in 2011 is not expected to sufficiently compensate for the inventory drawdown last year. Higher oil prices also tend to drive up food prices owing to rising production costs. At the same time the incentive to increase production of non-fossil fuels such as ethanol rises in pace with oil prices. Growing competition between food production and fuel production tends to drive up food prices, which was also what happened in 8, when oil prices reached record-high levels. High food prices are taking a bite The substantial price increase in food commodities since June of last year was broken in March. The subindex fell by 3.1% in USD compared with February, but still remains at a significantly higher level than the same period last year. Among grain products, wheat fell the most in price, by nearly 9%, while corn prices were relatively stable in March. Sugar and beverages also reported falling prices after a continuous increase since May of last year. We expect food prices to trend higher in the year ahead due to increased global growth and Grain prices and crude oil in USD Grains Price for Crude oil, Brent Källa: Reuters EcoWin Jörgen Kennemar 4 (6)

5 Monthly newsletter from Swedbank s Economic Research Department by Jörgen Kennemar No April 2011 Swedbank Commodity - US$ - Basis 0 = 1oo Total index 327,1 341,3 365,8 Per cent change month ago 4,1 4,4 7,2 Per cent change year ago 25,5 35,8 38,3 Total index exclusive energy 308,7 318,9 314,5 Per cent change month ago 5,5 3,3-1,4 Per cent change year ago 37,5 47,6 40,8 Food, tropical beverages 302,5 317,6 307,9 Per cent change month ago 5,7 5,0-3,1 Per cent change year ago 32,2 45,6 48,0 Cereals 294,7 314,5 313,8 Per cent change month ago 5,7 6,7-0,2 Per cent change year ago 49,4 67,6 69,1 Tropical beverages and tobacco 317,0 337,8 326,3 Per cent change month ago 5,1 6,6-3,4 Per cent change year ago 24,0 38,8 44,6 Coffee 196,8 215,2 223,6 Per cent change month ago 7,1 9,3 3,9 Per cent change year ago 55,1 74,4 78,5 Oilseeds and oil 276,4 276,1 264,1 Per cent change month ago 7,1-0,1-4,3 Per cent change year ago 44,4 50,2 42,8 Industrial raw materials 310,5 319,3 316,4 Per cent change month ago 5,4 2,8-0,9 Per cent change year ago 39,0 48,2 39,0 Agricultural raw materials,8 207,0 202,9 Per cent change month ago 3,9 3,1-2,0 Per cent change year ago 26,5 31,3 23,5 Cotton 151,6 185,8 201,0 Per cent change month ago 7,7 22,6 8,2 Per cent change year ago 110,8 149,4 147,2 Softwood 144,2 144,6 146,8 Per cent change month ago -0,3 0,3 1,5 Per cent change year ago 4,0 6,0 4,3 Woodpulp 949,0 949,1 964,6 Per cent change month ago -0,1 0,0 1,6 Per cent change year ago 16,5 13,0 9,9 Non-ferrous metals 288,3 300,3 296,4 Per cent change month ago 4,6 4,2-1,3 Per cent change year ago 21,6 36,7 23,6 Copper 9563,7 9867,2 9530,1 Per cent change month ago 4,7 3,2-3,4 Per cent change year ago 29,5 44,4 27,7 Aluminium 2440,2 2507,8 2552,2 Per cent change month ago 4,0 2,8 1,8 Per cent change year ago 9,1 22,7 15,7 Lead 2600,2 2586,2 2623,3 Per cent change month ago 8,1-0,5 1,4 Per cent change year ago 9,8 21,3 20,8 Zinc 2373,9 2464,7 2348,9 Per cent change month ago 4,5 3,8-4,7 Per cent change year ago -2,5 14,4 3,3 Nickel 25609, , ,4 Per cent change month ago 6,5 10,3-5,1 Per cent change year ago 38,9 49,7 19,4 Iron ore, steel scrap 653,3 660,0 662,8 Per cent change month ago 7,6 1,0 0,4 Per cent change year ago 86,6 87,8 86,4 Energy raw materials 335,2 351,3 388,6 Per cent change month ago 3,5 4,8 10,6 Per cent change year ago 21,2 31,6 37,3 Coking coal 490,5 479,3 478,9 Per cent change month ago 7,9-2,3-0,1 Per cent change year ago 34,2 37,8 36,0 Crude oil 328,1 345,4 384,5 Per cent change month ago 3,2 5,3 11,3 Per cent change year ago 20,4 31,2 37,4 Swedbank Commodity - SKr - Basis 0 = 1oo Total index 237,1 238,6 252,1 Per cent change month ago 1,5 0,6 5,7 Per cent change year ago 17,2 20,3 22,4 Total index exclusive energy 223,8 222,9 216,7 Per cent change month ago 2,8-0,4-2,8 Per cent change year ago 28,4 30,7 24,7 Food, tropical beverages 219,3 222,0 212,2 Per cent change month ago 3,1 1,2-4,4 Per cent change year ago 23,5 29,0 31,0 Cereals 213,7 219,8 216,2 Per cent change month ago 3,0 2,9-1,6 Per cent change year ago 39,5 48,4 49,7 Tropical beverages and tobacco 229,8 236,1 224,9 Per cent change month ago 2,5 2,7-4,8 Per cent change year ago 15,8 23,0 28,1 Coffee 142,7,4 154,1 Per cent change month ago 4,4 5,4 2,4 Per cent change year ago 44,9 54,5 58,0 Oilseeds and oil,4 193,0 182,0 Per cent change month ago 4,5-3,7-5,7 Per cent change year ago 34,9 33,0 26,5 Industrial raw materials 225,1 223,2 218,0 Per cent change month ago 2,8-0,9-2,3 Per cent change year ago 29,9 31,2 23,0 Agricultural raw materials 145,6 144,7 139,8 Per cent change month ago 1,4-0,6-3,4 Per cent change year ago 18,2 16,3 9,4 Cotton 109,9 129,9 138,5 Per cent change month ago 5,0 18,1 6,7 Per cent change year ago 97,0 120,9 118,9 Softwood 104,5 101,1 101,2 Per cent change month ago -2,8-3,3 0,1 Per cent change year ago -2,8-6,1-7,7 Woodpulp 688,0 663,3 664,7 Per cent change month ago -2,6-3,6 0,2 Per cent change year ago 8,9 0,0-2,7 Non-ferrous metals 209,0 209,9 204,3 Per cent change month ago 2,0 0,4-2,7 Per cent change year ago 13,6 21,1 9,4 Copper 6933,7 6896,3 6567,5 Per cent change month ago 2,1-0,5-4,8 Per cent change year ago 21,0 27,9 13,1 Aluminium 1769,1 2,7 8,8 Per cent change month ago 1,4-0,9 0,3 Per cent change year ago 1,9 8,7 2,5 Lead 1885,1 1807,5 1807,8 Per cent change month ago 5,4-4,1 0,0 Per cent change year ago 2,6 7,5 7,0 Zinc 1721,1 1722,6 1618,7 Per cent change month ago 1,9 0,1-6,0 Per cent change year ago -8,9 1,3-8,6 Nickel 18566, , ,8 Per cent change month ago 3,8 6,3-6,4 Per cent change year ago 29,8 32,6 5,7 Iron ore, steel scrap 473,6 461,3 456,8 Per cent change month ago 5,0-2,6-1,0 Per cent change year ago 74,3 66,3 65,1 Energy raw materials 243,0 245,5 267,8 Per cent change month ago 1,0 1,0 9,1 Per cent change year ago 13,2 16,6 21,6 Coking coal 355,6 335,0 330,0 Per cent change month ago 5,2-5,8-1,5 Per cent change year ago 25,4 22,0 20,4 Crude oil 237,9 241,4 265,0 Per cent change month ago 0,7 1,5 9,8 Per cent change year ago 12,5 16,2 21,7 Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg Swedbank Economic Research Department SE Stockholm, Sweden Phone ek.sekr@swedbank.se Legally responsible publisher Cecilia Hermansson, Magnus Alvesson, Jörgen Kennemar, Swedbank s monthly Energy & Commodities newsletter is published as a service to our customers. We believe that we have used reliable sources and methods in the preparation of the analyses reported in this publication. However, we cannot guarantee the accuracy or completeness of the report and cannot be held responsible for any error or omission in the underlying material or its use. Readers are encouraged to base any (investment) decisions on other material as well. Neither Swedbank nor its employees may be held responsible for losses or damages, direct or indirect, owing to any errors or omissions in Swedbank s monthly Energy & Commodities newsletter. Economic Research Department. Swedbank AB. SE Stockholm. Phone ek.sekr@swedbank.se Legally responsible publisher: Cecilia Hermansson Magnus Alvesson Jörgen Kennemar