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Commodities Letter - June 2014

Commodities Letter - June 2014

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Published by Swedbank AB (publ)
Commodities Letter - June 2014
Commodities Letter - June 2014

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Published by: Swedbank AB (publ) on Jun 26, 2014
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06/26/2014

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Strategy and Macro Research – Large Corporates & Institutions
1 of 5
Titel
Macro analysis - 24 June 2014
 
Coodities and !ner
Uncertainty about supplies lifts energy prices
Swedbank’s Total Commodity Price Index, USD
"rice pressure #ro the "rice pressure #ro the "rice pressure #ro the "rice pressure #ro the glo$alglo$alglo$alglo$al coodity ar%etscoodity ar%etscoodity ar%etscoodity ar%ets asasasas %ept in chec% in %ept in chec% in %ept in chec% in %ept in chec% in MayMayMayMay' Se' Se' Se' Sed$an%(sd$an%(sd$an%(sd$an%(s )otal Coodity "rice )otal Coodity "rice )otal Coodity "rice )otal Coodity "rice Inde*Inde*Inde*Inde* rose arginally in $oth +S, and S! copared rose arginally in $oth +S, and S! copared rose arginally in $oth +S, and S! copared rose arginally in $oth +S, and S! copared ith the pre.ious onthith the pre.ious onthith the pre.ious onthith the pre.ious onth'''' ,,,,e.elopents in Ira/ and e.elopents in Ira/ and e.elopents in Ira/ and e.elopents in Ira/ and +%raine in +%raine in +%raine in +%raine in June June June June increase the ris% o# higher increase the ris% o# higher increase the ris% o# higher increase the ris% o# higher oil priceoil priceoil priceoil prices than s than s than s than pre.iously #orecaspre.iously #orecaspre.iously #orecaspre.iously #orecastttt h h h hoe.eroe.eroe.eroe.er' ' ' '
!*cluding energy the!*cluding energy the!*cluding energy the!*cluding energy the inde* inde* inde* inde* #ell $y 2#ell $y 2#ell $y 2#ell $y 2' its loest le.el ' its loest le.el ' its loest le.el ' its loest le.el since last inter' )he signi#icant decline in the price o# since last inter' )he signi#icant decline in the price o# since last inter' )he signi#icant decline in the price o# since last inter' )he signi#icant decline in the price o# iron ore 3ust o.er iron ore 3ust o.er iron ore 3ust o.er iron ore 3ust o.er  as partas partas partas partlylylyly hy the inde* #or hy the inde* #or hy the inde* #or hy the inde* #or industrial coodities #ell' 5roing iron ore production industrial coodities #ell' 5roing iron ore production industrial coodities #ell' 5roing iron ore production industrial coodities #ell' 5roing iron ore production and a sluggish glo$al econoy are %eeping pressure on and a sluggish glo$al econoy are %eeping pressure on and a sluggish glo$al econoy are %eeping pressure on and a sluggish glo$al econoy are %eeping pressure on iron ore prices' iron ore prices' iron ore prices' iron ore prices'
6ood prices also retreated in 6ood prices also retreated in 6ood prices also retreated in 6ood prices also retreated in MMMMay $y 1'2 a#ter ha.ing ay $y 1'2 a#ter ha.ing ay $y 1'2 a#ter ha.ing ay $y 1'2 a#ter ha.ing risen risen risen risen $y $y $y $y nearly 2 innearly 2 innearly 2 innearly 2 in MarchMarchMarchMarch andandandand 7pr7pr7pr7pril' il' il' il'
5eopolitic5eopolitic5eopolitic5eopolitical concerns are raising the ris% preiu on crudeal concerns are raising the ris% preiu on crudeal concerns are raising the ris% preiu on crudeal concerns are raising the ris% preiu on crude 6ears o# supply disruptions ha.e increased and oil 89rent: is no priced around +S, 114-11 a $arrel the highest le.el in o.er a year a#ter ha.ing #luctuated in the range o# +S, 10-110' In short order the Sunni e*treist group ISIS has ta%en o.er se.eral large cities in northern Ira/ raising #ears that southern parts o# the country hich account #or ;0 o# Ira/<s oil production ill $e a##ected' Ira/ is ="!C<s second largest producer ith signi#icant reser.es' 7s a result the con#lict could ha.e a3or conse/uences on the oil ar%et i# it persists' In other oil-producing countries such as Li$ya and >igeria production reains $elo target partly due to political turoil and sa$otage' 7nticipated Ira/i oil production o# 4 illion $arrels a day $y late 2014 is no at ris% at the sae tie that glo$al consuption #orecasts ha.e $een ad3usted higher $y the =!C,<s international oil organi?ation 8I!7: #or this year and ne*t' 7s a hole this eans that the oil ar%et has $ecoe considera$ly tighter than e thought this spring' @e are ad3usting upard our oil #orecast #or this year and no see an a.erage oil price o# +S, 110 a $arrel copared ith +S, 10A in the 7pril #orecast' 6or ne*t year e estiate an a.erage price o# +S, 104 8+S, ;;'0 according to earlier estiates: since groing +S production and easing geopolitical ris% are e*pected to %eep the pressure on oil prices' )he crisis in Ira/ is di##icult to assess hoe.er and there is a ris% that prices could stic% at higher le.els' In our ain scenario
Source: Swedbank 
10 11 12 13 14
   I  n   d  e  x
80901001101201301401502010=100OljaTotal indexFoodTotal excl energyMetals
 
 
2 (5)
e e*pect higher production #ro other ="!C countries particularly those here production .olue has $een liited $y political tur$ulence andBor e*port restrictions' )here is also groing political pressure to raise standards o# li.ing and increased oil production is a %ey source o# #inancing' 7t the sae tie this is a challenge #or ="!C soe e$ers o# hich strongly oppose higher production le.els' SeSeSeSed$an%(sd$an%(sd$an%(sd$an%(s oil oil oil oil pricepricepriceprice #orecast#orecast#orecast#orecast 89rent:89rent:89rent:89rent: +S,+S,+S,+S, Iron oreIron oreIron oreIron ore andandandand ststststeeeeeeeel l l l prices loerprices loerprices loerprices loer $ut$ut$ut$ut otherotherotherother etalsetalsetalsetals are risingare risingare risingare rising )he a3or decline in the price o# iron ore 3ust o.er  $eteen 7pril and May as the ain reason hy the inde* #or industrial coodity prices #ell' 5roing iron ore production and a sluggish glo$al econoy are contri$uting to loer iron ore prices hich are no at their loest le.els 8$elo +S, ;0 per ton: since autun 2012' In China the orld<s largest iron ore consuer deand has #allen in connection ith loer in.estent groth and the ongoing consolidation o# the Chinese steel industry' Loer iron ore prices and groing in.entories ha.e not yet had a signi#icant ipact on production' >or has the restructuring o# the Chinese steel industry 8nearly hal# o# the orld<s steel production: a##ected glo$al steel production hich in May continued to rise #aster than glo$al consuption' )his has pushed steel prices don to the loest le.els since 7ugust o# last year' "rices ill pro$a$ly ha.e to drop #urther or the structural trans#oration in China ill ha.e to speed up $e#ore e see larger production cut$ac%s' Metal Metal Metal Metal pricepricepriceprice trend intrend intrend intrend in 2014201420142014 +S,+S,+S,+S, "rices o# other industrial etals o.ed in the opposite direction especially nic%el hich rose $y no less than 12'2 in May #ro the pre.ious onth' )his a%es nic%el a$out 0 higher than 12 onths ago' )he price increase is ainly dri.en $y #ears o# loer supplies in the a%e o# Indonesia<s decision to liit nic%el e*ports though also orries that Russia ill reduce its e*ports in the a#terath o# the escalating crisis in +%raine' )he price o# copper rose $y '2 re.ersing a recent decline' 7luinu ent the other ay #alling in price a#ter ha.ing risen in recent onths' )he May nu$ers support our thesis that etal prices ha.e $ottoed out and ill gradually increase in coing /uarters though this ill .ary $eteen di##erent etals' )he #igure $elo shos that etal prices are still loer than the "MI indicates hoe.er pro$a$ly due to rising in.entories and sluggish glo$al industrial acti.ity' Industrial etalsIndustrial etalsIndustrial etalsIndustrial etals andandandand glo$al "MIglo$al "MIglo$al "MIglo$al "MI 6ood prices ha.e le.eled o## 6ood prices ha.e le.eled o## 6ood prices ha.e le.eled o## 6ood prices ha.e le.eled o## 5lo$al #ood prices #ell $y 1'2 in May a#ter ha.ing risen signi#icantly and $roadly in March and 7pril' )he ain reason as a price decline #or tropical $e.erages led $y co##ee' In spite o# this the price le.el #or these groups is still higher – 3ust o.er 20 – than the sae period last year' )he price rise #or grains sloed in May ith prices gaining 0'; on a onthly $asis a#ter ha.ing risen $y 'D on a.erage in March and 7pril' Indications o# a noral preseason #or soing in the +S and ipro.ed eather conditions ha.e contri$uted to loer grain prices' )he +> 6ood and 7griculture =rgani?ation 867=: has re.ised its glo$al grain #orecast upard to 240 illion tons hich is still 1'4 loer than last year<s record le.els' Corn production has $een ad3usted higher hile heat supplies are liited $y loer anticipated production nu$ers in Canada the +S and )ur%ey' Re.ised production #orecasts and rising grain in.entories suggest liited price pressure in the ne*t hal#-year' )he $iggest ris% is i# eather conditions should orsen signi#icantly in coing ee%s' 6666ood pricesood pricesood pricesood prices are again trending loerare again trending loerare again trending loerare again trending loer 6or dairy products 8il% $utter and cheese: glo$al prices trended loer this spring and early suer $ut #ro high le.els' Last year<s price rise hich as partly dri.en $y e*port restrictions #ro se.eral countries has $een #olloed this year $y groing dairy e*ports and increased production hich has
708090100110120130
   1    J  a  n    a  r   i   2   0   1   4  =   1   0   0
   I  n   d  e  x   I  n   d  e  x   !   d   i   "   "    s   i  o  n   #
 
 
3 (5)
pushed prices loer a trend e e*pect to continue in coing /uarters' Meat prices ha.e continued higher and supplies are liited $y aong other things a .irus in the +S eat industry' 7t the sae tie glo$al deand is increasing particularly in eerging ar%ets here consuption o# anial products is e*pected to gro as purchasing poer ipro.es' )his suggests higher eat prices going #orard'
S&ed$an%(s Coodity "rice Inde* is $ased on the coposition o# S&edish coodity iports0 &ith crude oil carrying the hea.iest &eight in the inde*' )he &eights in the Coodity "rice Inde* are sho&n $elo& #or each ain group'
Food 6.9 Agricultural commodities 9.6 Non-ferrous metals 10.5 Ferrous ore/scrap 3.7 Crude oil 66.3 Coal 3.0 Total 100.0
Macro Research  JErgen ennear
 
"honeF G4D  A00 ;04 e-ailF  3orgen'%ennearHsed$an%'se 

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