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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, 09 November 23
GREEK AND CHINESE COMPANIES OWN 34% OF THE GLOBAL FLEET’S CARGO CAPACITY - BIMCO
“The global fleet of cargo carrying ships consists of around 61,000 ships with a deadweight capacity of about 2,200 million tonnes. The ships ...
Monday, 23 October 23
CHINA SEPT COAL OUTPUT HITS SIX-MONTH HIGH ON RISING POWER DEMAND - REUTERS
China’s September coal output rose 0.4% from August to the highest level since March, official data showed on Wednesday, on rising power dema ...
Monday, 23 October 23
INDIA COAL INVENTORIES DROP AT FASTEST PACE IN TWO YEARS, BOOSTING IMPORTS - REUTERS
Coal inventories at Indian power plants in the first half of October fell at their fastest rate in two years, an analysis of government data showed ...
Tuesday, 19 September 23
LNG SHIPPING STOCKS: THE ASIAN GROWTH UP-INDICES
Last week, the UP World LNG Shipping Index (UPI) gained 3.81 points or 2.51%, closing at 155.85 points. This index tracks the performance of LNG sh ...
Sunday, 10 September 23
GOLDMAN SACHS PREDICTS OIL PRICE TO HIT $100 ON OPEC CUTS - YAHOO FINANCE
Oil supply cuts by Saudi Arabia and Russia could lead to Brent crude jumping as high as $107 a barrel in 2024, Goldman Sachs Commodities Research h ...
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- Australian Commodity Traders Exchange
- Barasentosa Lestari - Indonesia
- ASAPP Information Group - India
- Mjunction Services Limited - India
- Coalindo Energy - Indonesia
- San Jose City I Power Corp, Philippines
- SMG Consultants - Indonesia
- Orica Australia Pty. Ltd.
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Parry Sugars Refinery, India
- Directorate General of MIneral and Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Thai Mozambique Logistica
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- Dalmia Cement Bharat India
- IEA Clean Coal Centre - UK
- Altura Mining Limited, Indonesia
- New Zealand Coal & Carbon
- Intertek Mineral Services - Indonesia
- Malabar Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Krishnapatnam Port Company Ltd. - India
- PowerSource Philippines DevCo
- GN Power Mariveles Coal Plant, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Port Waratah Coal Services - Australia
- Directorate Of Revenue Intelligence - India
- Samtan Co., Ltd - South Korea
- Australian Coal Association
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Electricity Regulatory Commission - India
- TeaM Sual Corporation - Philippines
- Central Electricity Authority - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bangladesh Power Developement Board
- Lanco Infratech Ltd - India
- Siam City Cement PLC, Thailand
- Borneo Indobara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karaikal Port Pvt Ltd - India
- Thiess Contractors Indonesia
- MS Steel International - UAE
- Renaissance Capital - South Africa
- Indian Oil Corporation Limited
- Siam City Cement - Thailand
- Cement Manufacturers Association - India
- Pipit Mutiara Jaya. PT, Indonesia
- Formosa Plastics Group - Taiwan
- Baramulti Group, Indonesia
- Deloitte Consulting - India
- Gujarat Sidhee Cement - India
- Pendopo Energi Batubara - Indonesia
- Eastern Coal Council - USA
- Trasteel International SA, Italy
- Xindia Steels Limited - India
- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Iligan Light & Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Sical Logistics Limited - India
- CNBM International Corporation - China
- Aditya Birla Group - India
- Madhucon Powers Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Singapore Mercantile Exchange
- Kobexindo Tractors - Indoneisa
- Indian Energy Exchange, India
- Sarangani Energy Corporation, Philippines
- Sakthi Sugars Limited - India
- Energy Development Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Mercuria Energy - Indonesia
- Indika Energy - Indonesia
- Semirara Mining Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- Latin American Coal - Colombia
- Bulk Trading Sa - Switzerland
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Ministry of Mines - Canada
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- SMC Global Power, Philippines
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Riau Bara Harum - Indonesia
- The Treasury - Australian Government
- Grasim Industreis Ltd - India
- Ministry of Transport, Egypt
- McConnell Dowell - Australia
- Mercator Lines Limited - India
- European Bulk Services B.V. - Netherlands
- Kaltim Prima Coal - Indonesia
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Banpu Public Company Limited - Thailand
- Toyota Tsusho Corporation, Japan
- GAC Shipping (India) Pvt Ltd
- Electricity Generating Authority of Thailand
- Indo Tambangraya Megah - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- Bharathi Cement Corporation - India
- Kartika Selabumi Mining - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IHS Mccloskey Coal Group - USA
- India Bulls Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Larsen & Toubro Limited - India
- Indonesian Coal Mining Association
- Africa Commodities Group - South Africa
- Billiton Holdings Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- Tata Chemicals Ltd - India
- White Energy Company Limited
- Electricity Authority, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- Georgia Ports Authority, United States
- Binh Thuan Hamico - Vietnam
- Romanian Commodities Exchange
- South Luzon Thermal Energy Corporation
- Indogreen Group - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- Star Paper Mills Limited - India
- Rio Tinto Coal - Australia
- Meralco Power Generation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Energy Link Ltd, New Zealand
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Mintek Dendrill Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bhushan Steel Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wood Mackenzie - Singapore
- Vizag Seaport Private Limited - India
- Chamber of Mines of South Africa
- Carbofer General Trading SA - India
- Videocon Industries ltd - India
- Economic Council, Georgia
- PetroVietnam Power Coal Import and Supply Company
- Salva Resources Pvt Ltd - India
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
- Straits Asia Resources Limited - Singapore
- CIMB Investment Bank - Malaysia
- Bhatia International Limited - India
- GVK Power & Infra Limited - India
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Leighton Contractors Pty Ltd - Australia
- ICICI Bank Limited - India
- Wilmar Investment Holdings
- VISA Power Limited - India
- Sojitz Corporation - Japan
- Bukit Baiduri Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Standard Chartered Bank - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Commonwealth Bank - Australia
- Central Java Power - Indonesia
- Coal and Oil Company - UAE
- Kideco Jaya Agung - Indonesia
- Minerals Council of Australia
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- Sree Jayajothi Cements Limited - India
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Energy - Thailand
- Makarim & Taira - Indonesia
- Jindal Steel & Power Ltd - India
- Ambuja Cements Ltd - India
- Petron Corporation, Philippines
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- The University of Queensland
- Sinarmas Energy and Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- The State Trading Corporation of India Ltd
- Meenaskhi Energy Private Limited - India
- Parliament of New Zealand
- SN Aboitiz Power Inc, Philippines
- London Commodity Brokers - England
- Oldendorff Carriers - Singapore
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Goldman Sachs - Singapore
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