Commodities Monthly
Soft Chinese growth helps metalssupply catch-up
23 OCTOBER 2012
Commodities Monthly
Soft Chinese growth helps metals supply catch-up
GENERAL
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4-6 M
7-12 M
Central bank monetary stimulus pledges are becoming lesseffective while both the World Bank and IMF havedowngraded their global growth estimates and investors arebecoming increasingly concerned regarding the impending US“fiscal cliff”.
Signs of US economic improvements are being offset by thepersistent grim Eurozone outlook.
While the slowing Chinese economy showed tentative signs ofstabilization in September, neither a strong rebound nor panicdriven investment stimulus measures (such as occurred backin 2008-10) are likely.
ENERGY
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Further downward revisions of global growth prospects andthe solid supply growth outlook are particularly negative forlong-term crude oil price projections.
We lower our H2-13 and FY-14 average price forecasts $5/b to$110/b while maintaining our Q4-12 estimate at $110/b andour H1-13 expectation at $105/b.
In the short- to medium-term the crude oil market is mainlysupported by geopolitical tension and tight middle distillatemarkets. OPEC policy and producer incentive prices alsoprovide a firm foundation.
INDUSTRIAL METALS
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Most metals are trading close to or below their marginalproduction costs as supply catches up with softer demandgrowth.
“The super cycle is over for high cost miners” was CRU’smessage to its LME week audience.
Small- and medium-sized mining companies may decreaseinvestments as a result of current high capital costs andfinancing problems.
PRECIOUS METALS
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Gold has seriously disappointed over the last month. Despitenear ideal conditions prices have failed to climb above$1800/ozt during the QE3 driven rally.
In the short- to medium-term we retain our main bullishscenario despite increased downside risks. Gold is unlikely tohold ground in a risk-off environment.
However, we raise our H2-13 average gold price forecast by$50/ozt to $1700/ozt due to the open ended QE3 support onoffer and weaker global growth forecasts.
AGRICULTURE 0-3 M
4-6 M
7-12 M
As expected, grain prices have begun to fall from last month’sexceptionally high levels with downside risks dominant in theshort-, medium- and long term.
However, we do not anticipate an imminent price collapsegiven current low inventories, adverse local weather and risksof hoarding and protectionism.
We expect persistent high short- to medium-term supplyconcerns potentially triggering temporary rallies in individualgrain prices.
Arrows indicate the expected price action during the period in question.
UBS Bloomberg CMCI Sector Indices
(price indices, weekly closing, January 2010 = 100)
8090100110120130140150160170180
j a n - 1 0 f e b - 1 0 m a r - 1 0 a p r - 1 0 m a j - 1 0 j u n - 1 0 j u l - 1 0 a u g - 1 0 s e p - 1 0 o k t - 1 0 n o v - 1 0 d e c - 1 0 j a n - 1 1 f e b - 1 1 m a r - 1 1 a p r - 1 1 m a j - 1 1 j u n - 1 1 j u l - 1 1 a u g - 1 1 s e p - 1 1 o k t - 1 1 n o v - 1 1 d e c - 1 1 j a n - 1 2 f e b - 1 2 m a r - 1 2 a p r - 1 2 m a j - 1 2 j u n - 1 2 j u l - 1 2 a u g - 1 2 s e p - 1 2 o k t - 1 2
Industrial MetalsPrecious MetalsEnergyAgriculture
Sector performance
(MSCI World, UBS Bloomberg CMCI price indices)
-6-4-2024681012
E q u i t i e s C o m m o d i t i e s E n e r g y I n d u s t r i a l m e t a l s P r e c i o u s m e t a l s A g r i c u l t u r e
YTD (%) M/M (%)
Winners & Losers over the last month
(%)
-12-8-4048121620242832
Z i n c S o y b e a n s A l u m i n i u m C o f f e ( A r . ) P a l l a d i u m S i l v e r L e a d G a s o l i n e ( U S ) N i c k e l C o p p e r G o l d W T I C o c o a ( U S ) P l a t i n u m W h e a t T i n C o r n P o w e r ( C o n t . ) B r e n t C o t t o n S t e e l b i l l e t s H e a t . o i l ( U S ) C O 2 ( E U A ) S u g a r P o w e r ( N o r d i c ) N a t . g a s ( U S )
Chart Sources: Bloomberg, SEB Commodity Research
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Commodities Monthly
General
UBS Bloomberg CMCI
(price index, weekly closing)
300400500600700800900100011001200130014001500160017001800
2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
The US economic surprise index continues toimprove as do housing statistics and car sales.However, the country’s equity rally has stalled sinceSeptember when it benefited from central bankstimulus pledges made during August. The US “fiscalcliff” (including possible budget cuts and taxincreases) is of major concern for next year’s growthoutlook, potentially depressing market sentimentgoing forward. While European investors are lesspessimistic following announcements of ECBsupport, the region’s macroeconomic situationremains grim with OECD Leading Composite Indicessuggesting a continued deterioration. We thereforesee little reason to expect improved Europeandemand for imports from China, the world’s biggestcommodity consumer. Despite tentative signssuggesting its growth may be bottoming, there isconsiderable evidence highlighting the country’scurrent very poor growth environment.
JPM global manufacturing PMI
(monthly, PMIs >50 expansive)
3035404550556065
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
While China’s Q3-12 GDP growth y/y slowed even furtherto 7.4%, it improved slightly q/q from 2.0% to 2.2%.Commenting on the data release, Premier Wen Jiabaostated that the worst was probably over for the Chineseeconomy. Still, we do not expect an immediate strongrebound, a view corroborated by the country’s NationalBureau of Statistics which forecast only a modestrecovery in Q4-12, similar to September. Last month’simprovement in Chinese retail sales, exports andindustrial production also supported the view that theslowing Chinese economy is beginning to bottom. Even ifnew Yuan bank lending in September was disappointingat CNY 623bn, total social financing was higher thanexpected at CNY 1.65tn, up from CNY 1.24tn in August.The government’s recently announced total socialfinancing measure comprises several initiatives includingbond issuance as well as bank, trust and FX loans.Tentative stabilization of the Chinese economy furtherreduces the likelihood of a sudden, massive investment-led stimulus package from the government. Still, manymetrics confirm that China’s economy is very weak.While PMI manufacturing data published by HSBC Markitimproved slightly in September to 47.9, it still clearlysuggests lower manufacturing activity. At the same timeChinese power production fell 0.3% y/y whileconsumption by heavy industry fell 0.1% y/y. Moreover,Chinese railway freight traffic volume also continued tofall in August, decreasing 6.8% y/y to near 2010 levels.
OECD composite leading indicators
(monthly, 100 corresponds to long term trend growth in industrial production)
93949596979899100101102103104
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
ChinaEurozoneOECDUSAReference
Chart Sources: Bloomberg, SEB Commodity Research
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SEB´s Commodities Monthly: Metal supply catch-up
The US economic surprise index continues to improve, as do housing statistics and car sales, notes SEB's latest Commodities Monthly. However, the report notes that the US equity market rally has stalled since September when it benefited from central bank stimulus pledges made during August.
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