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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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Sunday, 10 September 23
CHINA AUGUST COAL IMPORTS OF 44.3 MLN T HIT RECORD - REUTERS
China, the world’s top coal consumer, imported 44.3 million metric tons of the fuel last month, customs data showed, the highest amount in an ...
Tuesday, 22 August 23
CHINA'S COAL PRODUCTION LOGS STEADY GROWTH IN JANUARY-JULY: XINHUA
China’s output of raw coal went up 3.6 percent year on year in the first seven months of this year, official data showed.
The ...
Sunday, 13 August 23
THE COMMODITIES FEED: LNG SUPPLY RISKS LINGER - ING
Energy – OPEC sees deficit over remainder of 2023
Oil prices came under some pressure yesterday with ICE Brent settling a litt ...
Wednesday, 09 August 23
COAL TRADE TO RETURN TO 2019 LEVELS - BALTIC EXCHANGE
The International Energy Agency’s mid-year Coal Market Update for 2023 brings both positive and concerning news for the global coal industry. ...
Sunday, 23 July 23
ANALYSIS-INDIA'S COAL MINING BET STUMBLES AS WARY BANKS WEIGH RISING RISKS - REUTERS
India’s drive to ramp up coal output to meet growing energy demand is faltering due to banks’ reluctance to finance newly auctioned min ...
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- Medco Energi Mining Internasional
- Coastal Gujarat Power Limited - India
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Kumho Petrochemical, South Korea
- SMC Global Power, Philippines
- Australian Coal Association
- India Bulls Power Limited - India
- Orica Australia Pty. Ltd.
- Electricity Generating Authority of Thailand
- PNOC Exploration Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Karaikal Port Pvt Ltd - India
- The Treasury - Australian Government
- Petrochimia International Co. Ltd.- Taiwan
- Maheswari Brothers Coal Limited - India
- Kartika Selabumi Mining - Indonesia
- Borneo Indobara - Indonesia
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Eastern Energy - Thailand
- Riau Bara Harum - Indonesia
- Petron Corporation, Philippines
- Xindia Steels Limited - India
- Indonesian Coal Mining Association
- Eastern Coal Council - USA
- Samtan Co., Ltd - South Korea
- Straits Asia Resources Limited - Singapore
- Ceylon Electricity Board - Sri Lanka
- Star Paper Mills Limited - India
- Minerals Council of Australia
- Bharathi Cement Corporation - India
- Lanco Infratech Ltd - India
- Bukit Makmur.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kalimantan Lumbung Energi - Indonesia
- CNBM International Corporation - China
- Merrill Lynch Commodities Europe
- Oldendorff Carriers - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Edison Trading Spa - Italy
- Uttam Galva Steels Limited - India
- White Energy Company Limited
- Jaiprakash Power Ventures ltd
- Directorate Of Revenue Intelligence - India
- Standard Chartered Bank - UAE
- Holcim Trading Pte Ltd - Singapore
- Mjunction Services Limited - India
- Kapuas Tunggal Persada - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Coalindo Energy - Indonesia
- Gujarat Sidhee Cement - India
- Independent Power Producers Association of India
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- Meralco Power Generation, Philippines
- PowerSource Philippines DevCo
- Asmin Koalindo Tuhup - Indonesia
- Larsen & Toubro Limited - India
- Aditya Birla Group - India
- Billiton Holdings Pty Ltd - Australia
- Bhushan Steel Limited - India
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Savvy Resources Ltd - HongKong
- OPG Power Generation Pvt Ltd - India
- ICICI Bank Limited - India
- Antam Resourcindo - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Kaltim Prima Coal - Indonesia
- Banpu Public Company Limited - Thailand
- The University of Queensland
- Bangladesh Power Developement Board
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- Formosa Plastics Group - Taiwan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Economic Council, Georgia
- Wilmar Investment Holdings
- Globalindo Alam Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Ministry of Mines - Canada
- Global Coal Blending Company Limited - Australia
- Mercuria Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Essar Steel Hazira Ltd - India
- Simpson Spence & Young - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- PetroVietnam Power Coal Import and Supply Company
- Tata Chemicals Ltd - India
- Romanian Commodities Exchange
- Ministry of Transport, Egypt
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
- Bayan Resources Tbk. - Indonesia
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Grasim Industreis Ltd - India
- European Bulk Services B.V. - Netherlands
- Kepco SPC Power Corporation, Philippines
- Renaissance Capital - South Africa
- International Coal Ventures Pvt Ltd - India
- Africa Commodities Group - South Africa
- Pipit Mutiara Jaya. PT, Indonesia
- Singapore Mercantile Exchange
- Heidelberg Cement - Germany
- Krishnapatnam Port Company Ltd. - India
- New Zealand Coal & Carbon
- Interocean Group of Companies - India
- Vizag Seaport Private Limited - India
- PTC India Limited - India
- ASAPP Information Group - India
- Miang Besar Coal Terminal - Indonesia
- Mintek Dendrill Indonesia
- Posco Energy - South Korea
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Meenaskhi Energy Private Limited - India
- Thai Mozambique Logistica
- IHS Mccloskey Coal Group - USA
- Global Business Power Corporation, Philippines
- Baramulti Group, Indonesia
- Bhoruka Overseas - Indonesia
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- Cement Manufacturers Association - India
- Global Green Power PLC Corporation, Philippines
- Parliament of New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement PLC, Thailand
- Latin American Coal - Colombia
- Mercator Lines Limited - India
- Georgia Ports Authority, United States
- Altura Mining Limited, Indonesia
- Price Waterhouse Coopers - Russia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ambuja Cements Ltd - India
- Parry Sugars Refinery, India
- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
- Carbofer General Trading SA - India
- Semirara Mining Corp, Philippines
- CIMB Investment Bank - Malaysia
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Attock Cement Pakistan Limited
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Indogreen Group - Indonesia
- Dalmia Cement Bharat India
- Metalloyd Limited - United Kingdom
- Ind-Barath Power Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- GN Power Mariveles Coal Plant, Philippines
- Alfred C Toepfer International GmbH - Germany
- Sarangani Energy Corporation, Philippines
- Vedanta Resources Plc - India
- Ministry of Finance - Indonesia
- Sical Logistics Limited - India
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Australian Commodity Traders Exchange
- Makarim & Taira - Indonesia
- Deloitte Consulting - India
- Indian Oil Corporation Limited
- Chettinad Cement Corporation Ltd - India
- Therma Luzon, Inc, Philippines
- Salva Resources Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Jindal Steel & Power Ltd - India
- Energy Link Ltd, New Zealand
- Chamber of Mines of South Africa
- GMR Energy Limited - India
- Agrawal Coal Company - India
- SMG Consultants - Indonesia
- Bulk Trading Sa - Switzerland
- Commonwealth Bank - Australia
- Gujarat Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Central Electricity Authority - India
- Marubeni Corporation - India
- Siam City Cement - Thailand
- Bukit Baiduri Energy - Indonesia
- Orica Mining Services - Indonesia
- San Jose City I Power Corp, Philippines
- Energy Development Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- SN Aboitiz Power Inc, Philippines
- Trasteel International SA, Italy
- Indian Energy Exchange, India
- Anglo American - United Kingdom
- Tamil Nadu electricity Board
- Pendopo Energi Batubara - Indonesia
- LBH Netherlands Bv - Netherlands
- Binh Thuan Hamico - Vietnam
- Sree Jayajothi Cements Limited - India
- Sojitz Corporation - Japan
- Malabar Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Planning Commission, India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Port Waratah Coal Services - Australia
- Thiess Contractors Indonesia
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