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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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Monday, 17 July 23
APPROVED AMMONIA-FUELED CONTAINERSHIP - BENEFITS AND RISKS: REED SMITH
Following the news in Offshore Energy that Korea Maritime Consultants has secured approval in principle from the American Bureau of Shipping for it ...
Friday, 14 July 23
CLEAN COAL USE KEY TO DEEP CUTS IN EMISSIONS, STABLE ELECTRICITY SUPPLY - CHINA DAILY
China must push for the clean use of coal and step up integration of the dirty fuel with carbon capture, utilization and storage to achieve sustain ...
Thursday, 13 July 23
VIETNAM'S COAL EMISSIONS PRIMED FOR SURGE AFTER IMPORTS JUMP - REUTERS
Vietnam’s thermal power emissions are primed for a steep climb this summer after the country’s imports of thermal coal soared to their ...
Monday, 26 June 23
COAL PRODUCTION AND CONSUMPTION UP IN 2022 - EUROSTAT
In 2022, EU coal production and consumption continued to increase, reaching 349 million tonnes (+5% compared with the previous year) and 454 millio ...
Wednesday, 21 June 23
QATAR STRIKES SECOND BIG LNG SUPPLY DEAL WITH CHINA - REUTERS
Qatar on Tuesday secured its second large gas supply deal with a Chinese state-controlled company in less than a year, putting Asia clearly ahead i ...
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- Riau Bara Harum - Indonesia
- Lanco Infratech Ltd - India
- Aboitiz Power Corporation - Philippines
- Ministry of Transport, Egypt
- Vedanta Resources Plc - India
- Karaikal Port Pvt Ltd - India
- Chamber of Mines of South Africa
- South Luzon Thermal Energy Corporation
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Standard Chartered Bank - UAE
- GAC Shipping (India) Pvt Ltd
- Banpu Public Company Limited - Thailand
- Karbindo Abesyapradhi - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- SMG Consultants - Indonesia
- Bhushan Steel Limited - India
- CIMB Investment Bank - Malaysia
- VISA Power Limited - India
- TeaM Sual Corporation - Philippines
- Metalloyd Limited - United Kingdom
- Renaissance Capital - South Africa
- Bharathi Cement Corporation - India
- Global Green Power PLC Corporation, Philippines
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Singapore Mercantile Exchange
- Cigading International Bulk Terminal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Makarim & Taira - Indonesia
- Wood Mackenzie - Singapore
- Meenaskhi Energy Private Limited - India
- Planning Commission, India
- Pipit Mutiara Jaya. PT, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Ind-Barath Power Infra Limited - India
- Indogreen Group - Indonesia
- London Commodity Brokers - England
- European Bulk Services B.V. - Netherlands
- Alfred C Toepfer International GmbH - Germany
- Salva Resources Pvt Ltd - India
- Medco Energi Mining Internasional
- Bukit Asam (Persero) Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- The State Trading Corporation of India Ltd
- Romanian Commodities Exchange
- Siam City Cement - Thailand
- Grasim Industreis Ltd - India
- Price Waterhouse Coopers - Russia
- PowerSource Philippines DevCo
- Anglo American - United Kingdom
- Antam Resourcindo - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- OPG Power Generation Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Vijayanagar Sugar Pvt Ltd - India
- Edison Trading Spa - Italy
- Bhoruka Overseas - Indonesia
- Sakthi Sugars Limited - India
- Bukit Baiduri Energy - Indonesia
- ICICI Bank Limited - India
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Ministry of Mines - Canada
- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- Kumho Petrochemical, South Korea
- Essar Steel Hazira Ltd - India
- Binh Thuan Hamico - Vietnam
- Leighton Contractors Pty Ltd - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- Sarangani Energy Corporation, Philippines
- Xindia Steels Limited - India
- CNBM International Corporation - China
- White Energy Company Limited
- Interocean Group of Companies - India
- The Treasury - Australian Government
- Jaiprakash Power Ventures ltd
- Coal and Oil Company - UAE
- Kapuas Tunggal Persada - Indonesia
- Thai Mozambique Logistica
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Borneo Indobara - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Central Java Power - Indonesia
- Posco Energy - South Korea
- SMC Global Power, Philippines
- Uttam Galva Steels Limited - India
- Meralco Power Generation, Philippines
- IEA Clean Coal Centre - UK
- Energy Development Corp, Philippines
- Gujarat Sidhee Cement - India
- Cement Manufacturers Association - India
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- Power Finance Corporation Ltd., India
- Bahari Cakrawala Sebuku - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- MS Steel International - UAE
- Manunggal Multi Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Kepco SPC Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Billiton Holdings Pty Ltd - Australia
- Marubeni Corporation - India
- Therma Luzon, Inc, Philippines
- Economic Council, Georgia
- Maharashtra Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Sindya Power Generating Company Private Ltd
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Mercator Lines Limited - India
- PNOC Exploration Corporation - Philippines
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- Ministry of Finance - Indonesia
- Star Paper Mills Limited - India
- Rashtriya Ispat Nigam Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indika Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Thiess Contractors Indonesia
- McConnell Dowell - Australia
- Kideco Jaya Agung - Indonesia
- Intertek Mineral Services - Indonesia
- Tata Chemicals Ltd - India
- Rio Tinto Coal - Australia
- Altura Mining Limited, Indonesia
- Larsen & Toubro Limited - India
- Minerals Council of Australia
- Sree Jayajothi Cements Limited - India
- Global Coal Blending Company Limited - Australia
- Bhatia International Limited - India
- Indian Energy Exchange, India
- Africa Commodities Group - South Africa
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- Electricity Authority, New Zealand
- GMR Energy Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Baramulti Group, Indonesia
- Siam City Cement PLC, Thailand
- Agrawal Coal Company - India
- Eastern Energy - Thailand
- Pendopo Energi Batubara - Indonesia
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Commonwealth Bank - Australia
- Videocon Industries ltd - India
- Chettinad Cement Corporation Ltd - India
- Georgia Ports Authority, United States
- Asmin Koalindo Tuhup - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Toyota Tsusho Corporation, Japan
- Sojitz Corporation - Japan
- International Coal Ventures Pvt Ltd - India
- Parliament of New Zealand
- Formosa Plastics Group - Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Attock Cement Pakistan Limited
- Directorate General of MIneral and Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Electricity Generating Authority of Thailand
- Trasteel International SA, Italy
- New Zealand Coal & Carbon
- Indian Oil Corporation Limited
- Neyveli Lignite Corporation Ltd, - India
- Wilmar Investment Holdings
- Petron Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Eastern Coal Council - USA
- Coalindo Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Bangladesh Power Developement Board
- Goldman Sachs - Singapore
- Kobexindo Tractors - Indoneisa
- Kaltim Prima Coal - Indonesia
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Aditya Birla Group - India
- Sical Logistics Limited - India
- Globalindo Alam Lestari - Indonesia
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- Iligan Light & Power Inc, Philippines
- Australian Coal Association
- Vizag Seaport Private Limited - India
- Jindal Steel & Power Ltd - India
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