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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, 01 December 23
COAL MINERS GROUP EXPECTS INDONESIA’S 2023 COAL OUTPUT TO SURPASS TARGET - REUTERS
The Indonesian Coal Mining Association (ICMA) expects the country’s 2023 coal output to surpass the official target of 695 million metric ton ...
Friday, 24 November 23
COAL IMPORTS TO INDIA IN OCTOBER 2023 REACHED HIGHEST LEVELS IN NEARLY A YEAR AND A HALF - VESSELSVALUE, VESON NAUTICAL
In October, coal imports to India reached 13.8 mt in October 2023, according to Oceanbolt, a Veson Nautical solution, the highest level since May 2 ...
Friday, 24 November 23
COAL SHIPMENTS TO ADVANCED ECONOMIES DOWN 17% SO FAR IN 2023 - BIMCO
In the first ten months of 2023, coal shipments to advanced economies fell by 17% y/y, as demand for electricity declined and the share of electric ...
Friday, 24 November 23
INTELLIGENT COAL MINES CONTRIBUTE TO IMPROVING SAFETY STANDARDS - CHINA DAILY
Mechanization, automation and intelligent upgrades have contributed to improved safety in coal mines, though the level of development of intelligen ...
Friday, 24 November 23
WHY AUSTRALIA'S COAL MINES ARE GETTING BIGGER - IEEFA
Australia’s largest coal mines are getting larger. Mines in New South Wales (NSW) are ramping up production following the state’s recov ...
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- PowerSource Philippines DevCo
- Simpson Spence & Young - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chettinad Cement Corporation Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Carbofer General Trading SA - India
- Holcim Trading Pte Ltd - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- OPG Power Generation Pvt Ltd - India
- Dalmia Cement Bharat India
- Grasim Industreis Ltd - India
- Commonwealth Bank - Australia
- Medco Energi Mining Internasional
- London Commodity Brokers - England
- Cement Manufacturers Association - India
- Bharathi Cement Corporation - India
- Wood Mackenzie - Singapore
- Kaltim Prima Coal - Indonesia
- Africa Commodities Group - South Africa
- Edison Trading Spa - Italy
- Xindia Steels Limited - India
- Electricity Authority, New Zealand
- Australian Coal Association
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- Sindya Power Generating Company Private Ltd
- Attock Cement Pakistan Limited
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Coal and Oil Company - UAE
- Billiton Holdings Pty Ltd - Australia
- Petron Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IEA Clean Coal Centre - UK
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Lanco Infratech Ltd - India
- Tata Chemicals Ltd - India
- CIMB Investment Bank - Malaysia
- Renaissance Capital - South Africa
- Pendopo Energi Batubara - Indonesia
- Ministry of Finance - Indonesia
- Altura Mining Limited, Indonesia
- Barasentosa Lestari - Indonesia
- Romanian Commodities Exchange
- Neyveli Lignite Corporation Ltd, - India
- Coalindo Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Uttam Galva Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Latin American Coal - Colombia
- Kohat Cement Company Ltd. - Pakistan
- Asmin Koalindo Tuhup - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Kumho Petrochemical, South Korea
- Meenaskhi Energy Private Limited - India
- Electricity Generating Authority of Thailand
- Orica Mining Services - Indonesia
- Semirara Mining Corp, Philippines
- Indian Energy Exchange, India
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- Sojitz Corporation - Japan
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- Samtan Co., Ltd - South Korea
- Sinarmas Energy and Mining - Indonesia
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Bhoruka Overseas - Indonesia
- Borneo Indobara - Indonesia
- Essar Steel Hazira Ltd - India
- Singapore Mercantile Exchange
- PTC India Limited - India
- Wilmar Investment Holdings
- Indo Tambangraya Megah - Indonesia
- Aditya Birla Group - India
- Aboitiz Power Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- India Bulls Power Limited - India
- Riau Bara Harum - Indonesia
- European Bulk Services B.V. - Netherlands
- The State Trading Corporation of India Ltd
- Gujarat Mineral Development Corp Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Heidelberg Cement - Germany
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Salva Resources Pvt Ltd - India
- New Zealand Coal & Carbon
- Vizag Seaport Private Limited - India
- Sical Logistics Limited - India
- Ministry of Mines - Canada
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GMR Energy Limited - India
- Bukit Baiduri Energy - Indonesia
- Agrawal Coal Company - India
- PetroVietnam Power Coal Import and Supply Company
- Siam City Cement PLC, Thailand
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- Anglo American - United Kingdom
- White Energy Company Limited
- Semirara Mining and Power Corporation, Philippines
- Central Electricity Authority - India
- The University of Queensland
- Videocon Industries ltd - India
- Indika Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Thai Mozambique Logistica
- Global Coal Blending Company Limited - Australia
- Price Waterhouse Coopers - Russia
- Krishnapatnam Port Company Ltd. - India
- Kepco SPC Power Corporation, Philippines
- Georgia Ports Authority, United States
- Star Paper Mills Limited - India
- Power Finance Corporation Ltd., India
- LBH Netherlands Bv - Netherlands
- Thiess Contractors Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- Globalindo Alam Lestari - Indonesia
- VISA Power Limited - India
- Minerals Council of Australia
- The Treasury - Australian Government
- Mercator Lines Limited - India
- McConnell Dowell - Australia
- Interocean Group of Companies - India
- Savvy Resources Ltd - HongKong
- TNB Fuel Sdn Bhd - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- Ind-Barath Power Infra Limited - India
- Larsen & Toubro Limited - India
- Coastal Gujarat Power Limited - India
- SMG Consultants - Indonesia
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- CNBM International Corporation - China
- Mjunction Services Limited - India
- Iligan Light & Power Inc, Philippines
- Eastern Coal Council - USA
- Tamil Nadu electricity Board
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- Mercuria Energy - Indonesia
- Parliament of New Zealand
- GN Power Mariveles Coal Plant, Philippines
- Jaiprakash Power Ventures ltd
- Energy Link Ltd, New Zealand
- Siam City Cement - Thailand
- Independent Power Producers Association of India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Intertek Mineral Services - Indonesia
- GVK Power & Infra Limited - India
- Oldendorff Carriers - Singapore
- San Jose City I Power Corp, Philippines
- Port Waratah Coal Services - Australia
- Bhushan Steel Limited - India
- Ministry of Transport, Egypt
- South Luzon Thermal Energy Corporation
- Directorate Of Revenue Intelligence - India
- Formosa Plastics Group - Taiwan
- Merrill Lynch Commodities Europe
- Sakthi Sugars Limited - India
- SMC Global Power, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Pipit Mutiara Jaya. PT, Indonesia
- Eastern Energy - Thailand
- GAC Shipping (India) Pvt Ltd
- Banpu Public Company Limited - Thailand
- ICICI Bank Limited - India
- Makarim & Taira - Indonesia
- Planning Commission, India
- Bukit Asam (Persero) Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Alfred C Toepfer International GmbH - Germany
- Therma Luzon, Inc, Philippines
- Deloitte Consulting - India
- Gujarat Sidhee Cement - India
- Karaikal Port Pvt Ltd - India
- Trasteel International SA, Italy
- Kobexindo Tractors - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- IHS Mccloskey Coal Group - USA
- Parry Sugars Refinery, India
- Jindal Steel & Power Ltd - India
- Ambuja Cements Ltd - India
- Meralco Power Generation, Philippines
- Madhucon Powers Ltd - India
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- Australian Commodity Traders Exchange
- Leighton Contractors Pty Ltd - Australia
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