Index Monthly newsletter from Swedbank s Economic Research Department by Jörgen Kennemar 2 Brighter economic signs lift the commodity market Stabilization of the global financial markets and an increased risk appetite among financial investors pushed commodity prices broadly higher in January. Swedbank s Total Commodity Price Index rose by 2.5% compared with December, reaching its highest level since July of last year. The price index excluding energy commodities, which have fallen since last summer, rebounded in January due to higher metal and food prices. The upswing in the commodity markets has come at the same time that Chinese metal imports rose significantly at the end of last year. Industrial metals reported for the biggest price gains in January, with nickel and copper leading the way. Falling global inventories, especially of copper, create the potential for further price increases going forward. Pulp prices continue to fall, however. In January they dropped for the sixth consecutive month, hitting a two-year low. Further production cutbacks are expected in 2012. There are no obvious signs that oil prices will decline significantly in the short term. Since October 2010 oil has averaged USD 110 a barrel. The risk premium on Brent crude is not likely to change considering the geopolitical uncertainty in the Middle East and risk of supply disruptions. At the same time oil consumption in emerging economies continues to grow, which will increase the need for higher production while also underscoring the importance of efficiency improvements. Swedbank s Total Commodity Price Index, USD 2 Råvaruprisindex totalt 225 Total index Total excl energy commodities Food ive energiråvaror 1 125 Metals 05 06 07 08 09Metaller 10 11 Source: Swedbank Economic Research Department. Swedbank. SE-105 34 Stockholm. Phone 46-8-5859 0. E-mail: ek.sekr@swedbank.se www.swedbank.se Legally responsible publisher: Cecilia Hermansson. 46-8-5859 7720. Magnus Alvesson. 46-8-5859 334. Jörgen Kennemar. 46-8-5859 7730.
Index, Jan 2011= The downward trend in commodity prices since the second half of 2011 has leveled off this year, which partly covaries with the improvement in global industrial activity. The Global Purchasing Managers Index (PMI) rose in January and is in the growth zone for the second month in a row. Better growth numbers from the US are also pushing commodity prices higher. At the same time investor interest in, and risk appetite for, commodities has returned partly because central banks, especially the European Central Bank (ECB), have taken aggressive monetary action to boost liquidity in the international financial markets after fiscal policies were tightened. This created greater confidence in the financial markets and led to lower TED spreads in Europe. The stabilization of the financial markets rests on shaky ground, however, and could change quickly, especially if the sovereign debt crisis in the euro zone worsens. 1, Interbanks interest rates minus government treasury, TED spreads its broad application in industry and construction, rose by an average of 6% and has again passed USD 8 000 a ton. Aluminum, which is used to manufacture aircraft and machinery, among other things, saw less of a price decline last fall compared with other base metals. In January aluminum rose by 5.7% after having steadily fallen during the fall. Zinc and lead have also risen in price, but at a more modest pace. Iron ore and scrap rose a modest 1.8% compared with January 2011. 115 110 105 95 90 85 80 Price trend for industrial metals, January 2011= 1,25 70 1,00 Sweden EMU 65 jan feb mar apr maj jun jul aug sep okt nov dec jan 11 12 Copper Lead Nickel Zinc Aluminium Source: Swedbank Japan 0, 0, 0,25 0,00 jan 09 10 11 12 Swedbank s Total Commodity Price Index rose by 2.5% in January in USD compared with December, reaching its highest level since July of last year. Measured in euro, the increase was 4.7%. Excluding energy commodities, the index rose by 2.8% in USD after having fallen for eight consecutive months by a total of 20%. Industrial metals saw the fastest price gain in January, climbing as much as 6.1%, the largest monthly change since August 2010. Nickel rose to nearly USD 19 800 a ton in January, up almost 9% in one month. This is a significant increase compared with last year, when nickel had the weakest price trend of any industrial metal. The price of copper, which is considered a reliable economic indicator because of UK USA The rebound in metal prices in the last month has happened at the same time that Chinese demand has risen, as evident by December import data. Less concern about a hard landing for the Chinese economy and indications of a growing Chinese inventory build-up are driving metal prices broadly higher. Inventory changes will mean price volatility, however, unless underlying demand strengthens. There have also been signs that the Chinese will loosen their monetary policy, which is partly supported by a decline in inflation to a more comfortable 4.1% in December. Temporarily lower metal extraction has tightened supply conditions during the fall and winter, especially for copper. Production by the largest mining companies such as BHP Billiton, Xstrata, Anglo American and Rio Tinto fell by 273 000 tons or 8.2% in 2011. This has led to rapidly shrinking copper inventories, which at the time of writing are at their lowest levels in over two years. Metal prices in coming quarters will depend in large part on how much emerging economies can keep growing when several OECD countries are in recession. This also applies to the global financial markets. Additional liquidityboosting measures by central banks raise the likelihood of a further increase in metal prices,
USD/fat Energy & Commodity despite that global growth prospects are relatively modest. High oil prices are here to stay Despite that global oil consumption fell in the last quarter of 2011, prices have been stuck at a high level. Brent crude was an average of 2.4% higher in January, at USD 110 a barrel, which could hurt the already shaky global economy and thus demand for oil products. The cold weather in Europe contributed to a widening price difference between European Brent crude and US crude. 140 130 120 110 90 80 70 Brent crude price in USD projected to rise by 3.2% in emerging economies, while continuing to fall, by 0.3%, in mature industrial countries. Although China is the world's second largest oil consumer, per capita it is significantly below the OECD average, a gap that will gradually shrink. Higher oil prices also tend to drive up the price of coal. In January coal rose by 3.4% in USD from the previous month. This is the first time in three months that the price of coal has risen. A cold winter is cutting into food supplies Global food prices have fluctuated greatly in recent years. Increased speculation, production disruptions owing to unfavorable weather conditions and growing competition between food and energy production are affecting the balance between supply and demand. At the same time the world's population and purchasing power are growing, so demand is trending higher, especially in emerging economies. 0 Grain prices, index 60 4 40 30 05 06 07 08 09 10 11 12 Källa: Swedbank, Reuters EcoWin 3 300 Cereals Wheat The rise in oil prices has also been driven by uncertainty about supplies and geopolitical developments in the Middle East. The EU s oil embargo on Iran, which will have its full effect this summer, and the Iranian threat to block or limit oil shipments through the Strait of Hormuz have raised oil s risk premium. The embargo, which represents 600 000 fat barrels a day, is not expected to have a major impact on supplies, since Saudi Arabia has promised to raise its production. There could be a bigger shortage of petroleum products, however, especially in Italy and Spain, where refineries mainly process lighter, low-sulfur Iranian oil. Iran is the fifth largest oil producer at 3.6 million barrels a day, most of which is exported to China, India and Japan economies with growing demand. In Japan, this is mainly due to the tsunami disaster and shutdown of a number of nuclear power plants. None of these countries is planning to cut back on their imports from Iran, which should also reduce the risk of increased imbalances in the global oil market. At the same time there is a clear shift in global oil consumption, where emerging economies led by Asia are taking a growing slice. This trend is expected to continue. This year consumption is 2 Corn 05 06 07 08 09 10 11 12 Increased global food production in 2011 and rising inventories contributed to a broad decline in prices in the second half-year at the same time that investors were seeking out safe harbors in the wake of the fiscal crisis. After peaking in February 2011, Swedbank s Commodity Price Index fell by nearly 20% in USD through last December. In January, however, prices rose by an average of 2.3% in USD after having fallen for four consecutive months. The unusually cold weather in Russia and Ukraine and speculation about Russian export restrictions on grain have driven prices higher. An extended cold snap could also have a negative effect on production over the course of 2012. Prices of forest commodities continued to fall during the first month of the year. Pulp prices fell in USD 3 (6)
Index USD/Ton (metric) USc/Pound by 1.7% between December and January, which was a smaller decline than in recent months. Weak global demand and overcapacity are contributing to the downward trend, because of which pulp has fallen by 18% since peaking in July 2011 at just over USD 1 000 a ton. This is also a signal of further production cutbacks going forward. 1 1 0 Price trend for various agricultural products, USD 225 1 interest. Silver has risen in USD by slightly over 20% since the beginning of the year, against 13% for gold. This is also a sign of an increased risk appetite in the financial markets. In addition to greater speculation, the price rise is being driven by higher industrial consumption of silver. The fiscal crisis in the EMU countries and liquidity support from central banks suggest further price increases for precious metals. 0 900 Index, 0= Gold and silver, index 900 800 800 125 700 700 600 600 0 0 00 01 02 03 04 05 06 07 08 09 10 11 25 300 Pulp Cotton Increased liquidity lifts precious metals The decline in the prices of gold and silver last fall has been followed this year by renewed investor jan 08 Gold Silver 09 10 11 12 Jörgen Kennemar
Monthly newsletter from Swedbank s Economic Research Department by Jörgen Kennemar 2 Swedbank Commodity Index - US$ - Basis 0 = 1oo 10-02-12 11.2011 12.2011 1.2012 Total index 365,0 359,7 368,7 Per cent change month ago 2,5-1,4 2,5 Per cent change year ago 22,8 14,5 12,7 Total index exclusive energy 269,5 264,1 271,5 Per cent change month ago -4,6-2,0 2,8 Per cent change year ago -5,0-9,8-12,0 Food, tropical beverages 268,6 258,7 264,8 Per cent change month ago -2,3-3,7 2,4 Per cent change year ago -0,6-9,6-12,5 Cereals 277,2 269,0 2,5 Per cent change month ago -1,6-3,0 2,4 Per cent change year ago 7,8-3,5-6,5 Tropical beverages and tobacco 286,5 274,0 277,0 Per cent change month ago -2,5-4,4 1,1 Per cent change year ago 0,5-9,1-12,6 Coffee 193,7 189,1 188,7 Per cent change month ago -0,2-2,4-0,2 Per cent change year ago 11,4 2,9-4,4 Oilseeds and oil 224,2 218,8 231,3 Per cent change month ago -2,4-2,4 5,7 Per cent change year ago -8,9-15,2-16,3 Industrial raw materials 269,8 265,7 273,5 Per cent change month ago -5,2-1,5 2,9 Per cent change year ago -6,3-9,8-11,9 Agricultural raw materials 173,7 167,1 166,8 Per cent change month ago -7,1-3,8-0,2 Per cent change year ago -8,9-13,5-16,9 Cotton 96,2 89,1 96,3 Per cent change month ago -4,9-7,4 8,1 Per cent change year ago -27,1-36,7-36,5 Softwood 138,3 132,3 129,7 Per cent change month ago -4,4-4,3-2,0 Per cent change year ago -7,4-8,5-10,1 W oodpulp 887,3 846,0 831,6 Per cent change month ago -4,6-4,7-1,7 Per cent change year ago -7,3-10,9-12,4 Non-ferrous metals 232,3 229,6 243,6 Per cent change month ago -1,9-1,2 6,1 Per cent change year ago -12,0-16,7-15,5 Copper 51,4 68,2 8020,8 Per cent change month ago 2,4 0,2 6,0 Per cent change year ago -10,8-17,1-16,1 Aluminium 2073,2 2020,0 2135,9 Per cent change month ago -4,7-2,6 5,7 Per cent change year ago -11,1-13,9-12,5 Lead 1981,6 2017,0 2088,6 Per cent change month ago 1,8 1,8 3,5 Per cent change year ago -16,6-16,1-19,7 Zinc 1915,7 1912,5 1973,4 Per cent change month ago 3,0-0,2 3,2 Per cent change year ago -16,4-15,8-16,9 Nickel 17879,4 18171,7 19748,2 Per cent change month ago -5,5 1,6 8,7 Per cent change year ago -21,9-24,5-22,9 Iron ore, steel scrap 620,9 619,2 630,4 Per cent change month ago -7,2-0,3 1,8 Per cent change year ago 3,0 2,0-3,5 Energy raw materials 407,4 402,1 411,8 Per cent change month ago 4,8-1,3 2,4 Per cent change year ago 34,4 24,2 22,9 Coking coal 428,4 422,8 438,5 Per cent change month ago -4,6-1,3 3,7 Per cent change year ago 5,3-7,0-10,6 Crude oil 406,4 401,2 410,6 Per cent change month ago 5,3-1,3 2,3 Per cent change year ago 36,2 26,2 25,1 Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg c Swedbank Commodity Index - SKr - Basis 0 = 1oo 10-02-12 11.2011 12.2011 1.2012 Total index 267,4 267,8 274,5 Per cent change month ago 3,9 0,2 2,5 Per cent change year ago 21,4 14,6 15,8 Total index exclusive energy 197,4 196,6 202,2 Per cent change month ago -3,3-0,4 2,8 Per cent change year ago -6,2-9,6-9,7 Food, tropical beverages 196,8 192,6 197,2 Per cent change month ago -1,0-2,1 2,4 Per cent change year ago -1,7-9,5-10,1 Cereals 203,1,3 205,1 Per cent change month ago -0,3-1,4 2,4 Per cent change year ago 6,6-3,4-4,0 Tropical beverages and tobacco 209,9 204,0 206,2 Per cent change month ago -1,2-2,8 1,1 Per cent change year ago -0,7-9,0-10,3 Coffee 141,9 140,8 140,5 Per cent change month ago 1,1-0,8-0,2 Per cent change year ago 10,1 3,0-1,8 Oilseeds and oil 164,3 162,9 172,2 Per cent change month ago -1,1-0,8 5,7 Per cent change year ago -10,0-15,1-14,1 Industrial raw materials 197,6 197,8 203,6 Per cent change month ago -3,9 0,1 2,9 Per cent change year ago -7,4-9,7-9,5 Agricultural raw materials 127,3 124,4 124,2 Per cent change month ago -5,8-2,2-0,2 Per cent change year ago -10,0-13,4-14,7 Cotton 70,5 66,3 71,7 Per cent change month ago -3,7-5,9 8,1 Per cent change year ago -28,0-36,6-34,8 Softwood 101,3 98,5 96,6 Per cent change month ago -3,1-2,8-2,0 Per cent change year ago -8,5-8,4-7,6 W oodpulp 6,0 629,9 619,2 Per cent change month ago -3,3-3,1-1,7 Per cent change year ago -8,4-10,8-10,0 Non-ferrous metals 170,2 171,0 181,4 Per cent change month ago -0,5 0,5 6,1 Per cent change year ago -13,0-16,6-13,2 Copper 5532,2 5635,0 5972,0 Per cent change month ago 3,8 1,9 6,0 Per cent change year ago -11,9-17,0-13,9 Aluminium 1518,8 4,0 1590,3 Per cent change month ago -3,4-1,0 5,7 Per cent change year ago -12,2-13,8-10,1 Lead 1451,7 1,8 1555,1 Per cent change month ago 3,2 3,4 3,5 Per cent change year ago -17,6-16,0-17,5 Zinc 1403,5 1424,0 1469,3 Per cent change month ago 4,4 1,5 3,2 Per cent change year ago -17,4-15,7-14,6 Nickel 13098,6 13530,0 14703,8 Per cent change month ago -4,2 3,3 8,7 Per cent change year ago -22,9-24,3-20,8 Iron ore, steel scrap 454,9 461,0 469,4 Per cent change month ago -6,0 1,4 1,8 Per cent change year ago 1,8 2,2-0,9 Energy raw materials 298,4 299,4 306,6 Per cent change month ago 6,2 0,3 2,4 Per cent change year ago 32,8 24,4 26,2 Coking coal 313,8 314,8 326,5 Per cent change month ago -3,3 0,3 3,7 Per cent change year ago 4,1-6,9-8,2 Crude oil 297,7 298,7 305,7 Per cent change month ago 6,7 0,3 2,3 Per cent change year ago 34,6 26,4 28,5 Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg Swedbank Economic Research Department SE-105 34 Stockholm, Sweden Phone 46-8-5859 7740 ek.sekr@swedbank.se www.swedbank.se Legally responsible publisher Cecilia Hermansson, 46-8-5859 7720. Magnus Alvesson, 46-8-5859 3341 Jörgen Kennemar, 46-8-5859 7730 Swedbank s monthly newsletter is published as s 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 otjer 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 Swedbanks monthly newsletter. Economic Research Department. Swedbank. SE-105 34 Stockholm. Phone 46-8-5859 0. E-mail: ek.sekr@swedbank.se www.swedbank.se Legally responsible publisher: Cecilia Hermansson. 46-8-5859 7720. Magnus Alvesson. 46-8-5859 334. Jörgen Kennemar. 46-8-5859 7730.