Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued No. 10 • 18 December 2012
the same period. Economically sensitive industrialmetals accounted for the biggest price decline in2012, dropping by 15-20% on average, in line withour forecast last fall. Crude and food commoditieshave been less affected by the weaker economy.Oil prices averaged just over US 112 in 2012,largely unchanged from 2011, but slightly higherthan we expected this past fall. Prices of foodcommodities, which rose significantly during thesummer, retreated during the fall due to higher-than-expected production output at the same timethat the threat of trade restrictions on foodcommodities have been taken off the table byseveral agricultural producing countries. Lowerprices on oilseeds in particular have contributed tothe lower food prices. Grain prices have also fallen,though from high levels. For the full-year the priceindex for food commodities is expected to fall by anaverage 5% compared with 2011.
Prices of industrial metals, January 2011=100
Weak global industrial activity and growing metalinventories have pushed metal prices broadly lower.Nickel and aluminum saw the largest average pricedeclines during the year (24% and 16%,respectively). Since the second half of Novembermetal prices have risen at the same time thatChinese industry has reported increased activity, asreflected by the PMI and industrial production. Thedownward trend for iron ore has been broken andsince September prices have pushed higher,although the price level is significantly lower than ayear ago. Increased infrastructure investment inChina is driving expectations of higher metalconsumption in the months ahead. To date,however, they have not reduced the imbalancebetween consumption and production, due to whichthe recent price increase rests on shaky grounds.Inventory data from the London Metal Exchange(LME), among others, point to growing metalinventories, which should restrain prices.
Inventories for non-ferrous metals, millions of tons
Our forecast of a gradual recovery in the globaleconomy during the second half of next year isexpected to lead to a more sustainable rise in metalprices. Inventory cutbacks in industry are likely toend. Instead a buildup of commodity and inputinventories is predicted to satisfy the growingdemand. In addition to rising metal consumption inChina, the recovery in the US housing market willlead to increased metal demand. We anticipate thatthe average price level for non-ferrous metals willrise by 3-4% next year. The biggest price increasepotential is in copper and lead, two product groupswith the tightest supply conditions. A recovery in theChinese steel industry could also push up nickelprices, which have been especially hard hit by lowersteel production growth in China in the last year.The embargo of Iranian oil exports and oilproduction capacity shortages in Libya have notlimited global access to crude. Record-high oilproduction in Saudi Arabia and the US has morethan compensated for the production losses. TheOPEC summit in December won’t lead to anyscheduled production limits in the near future, whichimplies daily oil production of 30 million barrels, withSaudi Arabia accounting for just over one third. USoil production is playing a bigger role in the globalsupply chain. A production volume corresponding to7 million barrels a day is the highest level since1992 and at the same time will put increasedpressure on oil prices if the current production rateis maintained. As long as oil prices stay above USD
Source: LME, Reuters EcoWin