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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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Friday, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
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- GAC Shipping (India) Pvt Ltd
- Lanco Infratech Ltd - India
- Carbofer General Trading SA - India
- European Bulk Services B.V. - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Bharathi Cement Corporation - India
- New Zealand Coal & Carbon
- IHS Mccloskey Coal Group - USA
- Siam City Cement - Thailand
- White Energy Company Limited
- Jorong Barutama Greston.PT - Indonesia
- Intertek Mineral Services - Indonesia
- Edison Trading Spa - Italy
- Posco Energy - South Korea
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Standard Chartered Bank - UAE
- Bukit Makmur.PT - Indonesia
- Madhucon Powers Ltd - India
- Karaikal Port Pvt Ltd - India
- Attock Cement Pakistan Limited
- Directorate General of MIneral and Coal - Indonesia
- Sojitz Corporation - Japan
- Aboitiz Power Corporation - Philippines
- Star Paper Mills Limited - India
- Latin American Coal - Colombia
- Essar Steel Hazira Ltd - India
- GVK Power & Infra Limited - India
- Banpu Public Company Limited - Thailand
- Bhushan Steel Limited - India
- Therma Luzon, Inc, Philippines
- Salva Resources Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- Indian Energy Exchange, India
- Coal and Oil Company - UAE
- Energy Link Ltd, New Zealand
- Rashtriya Ispat Nigam Limited - India
- Grasim Industreis Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- Energy Development Corp, Philippines
- Independent Power Producers Association of India
- Australian Commodity Traders Exchange
- Maharashtra Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Trasteel International SA, Italy
- Jindal Steel & Power Ltd - India
- Directorate Of Revenue Intelligence - India
- Ceylon Electricity Board - Sri Lanka
- ICICI Bank Limited - India
- Straits Asia Resources Limited - Singapore
- Minerals Council of Australia
- Indogreen Group - Indonesia
- Videocon Industries ltd - India
- LBH Netherlands Bv - Netherlands
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- Sakthi Sugars Limited - India
- Uttam Galva Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Kobexindo Tractors - Indoneisa
- Jaiprakash Power Ventures ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Parry Sugars Refinery, India
- Kapuas Tunggal Persada - Indonesia
- Central Java Power - Indonesia
- Toyota Tsusho Corporation, Japan
- ASAPP Information Group - India
- Australian Coal Association
- Ind-Barath Power Infra Limited - India
- Chamber of Mines of South Africa
- Electricity Authority, New Zealand
- Vizag Seaport Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Sree Jayajothi Cements Limited - India
- Barasentosa Lestari - Indonesia
- Sical Logistics Limited - India
- Ministry of Mines - Canada
- Metalloyd Limited - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Georgia Ports Authority, United States
- Parliament of New Zealand
- VISA Power Limited - India
- Price Waterhouse Coopers - Russia
- Bayan Resources Tbk. - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- SMG Consultants - Indonesia
- Kideco Jaya Agung - Indonesia
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- PowerSource Philippines DevCo
- Mercuria Energy - Indonesia
- The University of Queensland
- Iligan Light & Power Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Interocean Group of Companies - India
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Makarim & Taira - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- International Coal Ventures Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Pendopo Energi Batubara - Indonesia
- India Bulls Power Limited - India
- Planning Commission, India
- Economic Council, Georgia
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- Indo Tambangraya Megah - Indonesia
- SN Aboitiz Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Riau Bara Harum - Indonesia
- Bhoruka Overseas - Indonesia
- Antam Resourcindo - Indonesia
- San Jose City I Power Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Singapore Mercantile Exchange
- Rio Tinto Coal - Australia
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Sarangani Energy Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
- Thiess Contractors Indonesia
- Ministry of Transport, Egypt
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Wood Mackenzie - Singapore
- Ambuja Cements Ltd - India
- Orica Mining Services - Indonesia
- Mjunction Services Limited - India
- Deloitte Consulting - India
- Commonwealth Bank - Australia
- Baramulti Group, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- Global Coal Blending Company Limited - Australia
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Agrawal Coal Company - India
- PTC India Limited - India
- London Commodity Brokers - England
- Bahari Cakrawala Sebuku - Indonesia
- South Luzon Thermal Energy Corporation
- SMC Global Power, Philippines
- Aditya Birla Group - India
- Formosa Plastics Group - Taiwan
- Renaissance Capital - South Africa
- Meralco Power Generation, Philippines
- Timah Investasi Mineral - Indoneisa
- Indika Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TeaM Sual Corporation - Philippines
- Central Electricity Authority - India
- The State Trading Corporation of India Ltd
- Port Waratah Coal Services - Australia
- Medco Energi Mining Internasional
- Romanian Commodities Exchange
- Chettinad Cement Corporation Ltd - India
- Kepco SPC Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Anglo American - United Kingdom
- CNBM International Corporation - China
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Sindya Power Generating Company Private Ltd
- Tamil Nadu electricity Board
- PNOC Exploration Corporation - Philippines
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- Heidelberg Cement - Germany
- Siam City Cement PLC, Thailand
- Bulk Trading Sa - Switzerland
- PetroVietnam Power Coal Import and Supply Company
- Cement Manufacturers Association - India
- Kumho Petrochemical, South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kartika Selabumi Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Semirara Mining Corp, Philippines
- Mercator Lines Limited - India
- Meenaskhi Energy Private Limited - India
- GMR Energy Limited - India
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- Holcim Trading Pte Ltd - Singapore
- Africa Commodities Group - South Africa
- Alfred C Toepfer International GmbH - Germany
- Coastal Gujarat Power Limited - India
- MS Steel International - UAE
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