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Thursday, 22 February 18
WHY THE COMMODITY RALLY WILL GET BACK ON TRACK - SIMON FLOWERS
 Implications for the US dollar and producers
Are we in the early stages of a sustained rise in commodity prices? And what does it mean for the US dollar?
We posed these questions a year ago when robust global economic growth was driving commodity demand and the US dollar was starting to tip over from a 15-year high. The two are inextricably linked, though which is the horse and which the cart is not always clear. The recent disruption in financial markets suggests it’s worth a fresh look at the relationship.
Over the past couple of years, there has been a broad improvement in commodity prices, with indices up by around 50% on average since early 2016. It’s been far from uniform, and different commodities bottomed at different times.
Iron ore and oil have seen the most spectacular rebounds, both up more than 100% from their lows.
The fundamentals in each commodity market are very different, but Principal Economist Jon Butcher identifies common factors behind the recovery.
First and foremost is growth in the global economy. GDP growth strengthened from a low of 2.3% in Q1 2016 to a six-year high of 3.1% in Q4 2017. The upswing has been broadly based with growth accelerating across Asia, Europe and the Americas. In 2016, emerging market growth was just 3.7%; this year we expect 4.6%, with China and India driving much of the improvement. This is doubly important for commodity demand, given the resource-intensive nature of emerging market growth.
Then there is the US dollar. The currency dropped 10% on a trade-weighted basis by end-January 2018, from its high of a year ago. The relationship between the US dollar and commodity prices is not straightforward, or indeed constant. But the dollar tends to be inversely correlated with commodity prices; a weaker dollar usually means stronger commodity prices, and that’s what we’ve seen over the past six months.
The fall in the value of the dollar reflects strength in the emerging world rather than a weak US economy.
It’s also sentiment: with confidence boosted by the global economic upswing, investors have shifted capital out of traditional safe havens like US treasuries into riskier assets with potentially higher returns.
Better prospects for growth in major trade partners like Europe and Canada, and with the expectation of monetary tightening in those economies, they have pushed their currencies higher against the dollar. We’d expect continued dollar weakness through 2018 given the prospects for a strong year of global economic growth.
Financial market volatility in the last fortnight has upset the apple cart. Commodity prices have corrected and the US dollar bounced by 4%, taking it back to December levels. US jobs data released on 2 February highlighted tightness in the US labour market.
Associated wage gains prompted fears of higher inflation and raised the prospect of accelerated US interest rate hikes. Uncertainty spiked, and equities and commodities dropped. Increased risk aversion effectively pulled capital back into safe havens like the US.
So, turning point or just a blip? More likely the latter.
Our view is that the global economy is set fair for growth at a healthy pace, perhaps a tad slower than in 2017-18. Developing economies in particular will do well.
This provides a backdrop for a sustained recovery in commodities over the next five years, though each commodity market has its own fundamental story. Oil, for example, is stuck in oversupply for the next two years before the market tightens into the early 2020s.
As commodities gradually recover, the US dollar should revert to gentle decline – though markets adjusting to the end of 'easy money' means it will doubtless be a bumpy ride for the currency and commodities alike. If we’re right, then some commodity producers may be on a journey to a better place in the next few years – firmer prices and better margins.
On the other hand, it might not pan out this way. So producers have to learn from this tough down cycle and persevere with the relentless drive to keep costs down so they can still make money even at future cycle lows – and wherever the US dollar travels. That has to be the goal.
Simon Flowers
Chairman and Chief Analyst
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Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
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- Wood Mackenzie - Singapore
- Karaikal Port Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Aboitiz Power Corporation - Philippines
- Medco Energi Mining Internasional
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- Holcim Trading Pte Ltd - Singapore
- Mintek Dendrill Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Directorate General of MIneral and Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ministry of Transport, Egypt
- Karbindo Abesyapradhi - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Independent Power Producers Association of India
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- Bhoruka Overseas - Indonesia
- GMR Energy Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Coal Council - USA
- Essar Steel Hazira Ltd - India
- Indika Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Tamil Nadu electricity Board
- Bayan Resources Tbk. - Indonesia
- Africa Commodities Group - South Africa
- Toyota Tsusho Corporation, Japan
- GVK Power & Infra Limited - India
- Ind-Barath Power Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Gujarat Electricity Regulatory Commission - India
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SMG Consultants - Indonesia
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Marubeni Corporation - India
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- Samtan Co., Ltd - South Korea
- Deloitte Consulting - India
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Xindia Steels Limited - India
- Thiess Contractors Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- South Luzon Thermal Energy Corporation
- PNOC Exploration Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Star Paper Mills Limited - India
- Georgia Ports Authority, United States
- Economic Council, Georgia
- Global Business Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Central Java Power - Indonesia
- ASAPP Information Group - India
- Ministry of Finance - Indonesia
- European Bulk Services B.V. - Netherlands
- Standard Chartered Bank - UAE
- Kapuas Tunggal Persada - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Commonwealth Bank - Australia
- Rio Tinto Coal - Australia
- Kepco SPC Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Makarim & Taira - Indonesia
- Ministry of Mines - Canada
- Chamber of Mines of South Africa
- Coal and Oil Company - UAE
- Straits Asia Resources Limited - Singapore
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- Power Finance Corporation Ltd., India
- Interocean Group of Companies - India
- Cement Manufacturers Association - India
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Agrawal Coal Company - India
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Cigading International Bulk Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Pendopo Energi Batubara - Indonesia
- Binh Thuan Hamico - Vietnam
- Australian Coal Association
- Indonesian Coal Mining Association
- The State Trading Corporation of India Ltd
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Grasim Industreis Ltd - India
- Sical Logistics Limited - India
- Semirara Mining and Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Manunggal Multi Energi - Indonesia
- Electricity Authority, New Zealand
- Edison Trading Spa - Italy
- Therma Luzon, Inc, Philippines
- Energy Link Ltd, New Zealand
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bukit Makmur.PT - Indonesia
- CNBM International Corporation - China
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Baramulti Group, Indonesia
- Merrill Lynch Commodities Europe
- Energy Development Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Sakthi Sugars Limited - India
- Bulk Trading Sa - Switzerland
- IHS Mccloskey Coal Group - USA
- Directorate Of Revenue Intelligence - India
- McConnell Dowell - Australia
- Siam City Cement - Thailand
- Borneo Indobara - Indonesia
- Oldendorff Carriers - Singapore
- Metalloyd Limited - United Kingdom
- Pipit Mutiara Jaya. PT, Indonesia
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Bharathi Cement Corporation - India
- Vizag Seaport Private Limited - India
- Renaissance Capital - South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- GAC Shipping (India) Pvt Ltd
- The Treasury - Australian Government
- Jaiprakash Power Ventures ltd
- Bangladesh Power Developement Board
- LBH Netherlands Bv - Netherlands
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Bahari Cakrawala Sebuku - Indonesia
- Global Green Power PLC Corporation, Philippines
- Trasteel International SA, Italy
- TeaM Sual Corporation - Philippines
- Thai Mozambique Logistica
- Wilmar Investment Holdings
- Salva Resources Pvt Ltd - India
- PTC India Limited - India
- Bhushan Steel Limited - India
- Madhucon Powers Ltd - India
- The University of Queensland
- Ambuja Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Simpson Spence & Young - Indonesia
- Kideco Jaya Agung - Indonesia
- Romanian Commodities Exchange
- Rashtriya Ispat Nigam Limited - India
- Intertek Mineral Services - Indonesia
- Singapore Mercantile Exchange
- Port Waratah Coal Services - Australia
- Orica Mining Services - Indonesia
- MS Steel International - UAE
- Sindya Power Generating Company Private Ltd
- Sojitz Corporation - Japan
- Aditya Birla Group - India
- Eastern Energy - Thailand
- Indian Oil Corporation Limited
- Larsen & Toubro Limited - India
- Sree Jayajothi Cements Limited - India
- Gujarat Sidhee Cement - India
- Australian Commodity Traders Exchange
- Posco Energy - South Korea
- Meenaskhi Energy Private Limited - India
- Siam City Cement PLC, Thailand
- Vedanta Resources Plc - India
- VISA Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Malabar Cements Ltd - India
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- Videocon Industries ltd - India
- Heidelberg Cement - Germany
- SMC Global Power, Philippines
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Carbofer General Trading SA - India
- Antam Resourcindo - Indonesia
- Banpu Public Company Limited - Thailand
- IEA Clean Coal Centre - UK
- Savvy Resources Ltd - HongKong
- OPG Power Generation Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Coalindo Energy - Indonesia
- Central Electricity Authority - India
- Formosa Plastics Group - Taiwan
- Maharashtra Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- PowerSource Philippines DevCo
- Minerals Council of Australia
- Petron Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Bhatia International Limited - India
- Price Waterhouse Coopers - Russia
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