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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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Wednesday, 21 June 23
CHINA'S MAY COAL IMPORTS FROM AUSTRALIA RECOVER TO PRE-BAN LEVELS - REUTERS
Australian coal sales to China increased in May, as trade resumed between them even as overall coal demand weakened against an uncertain macroecono ...
Monday, 19 June 23
DROUGHT-DEPLETED HYDROPOWER DRIVES CHINA TO TURN TO COAL - REUTERS
China has leant hard on coal-fired power plants as well as wind and solar generators to make up for a shortfall in hydroelectric generation as a re ...
Monday, 19 June 23
CHINA COAL OUTPUT UP 4.2 PCT IN MAY - XINHUA
China’s raw coal output posted steady growth in May, official data showed.
The country produced 390 million tonnes of raw coal ...
Wednesday, 24 May 23
AMMONIA-FUELLED BULK CARRIERS WITHIN FIVE YEARS - BALTIC EXCHANGE
Within five years, ships powered by clean ammonia could be a feature on the iron ore trade routes between West Australia and East Asia.
A study ...
Tuesday, 23 May 23
CHINA'S APRIL COAL OUTPUT LEAPS 11% ON YEAR, BUT DEMAND DOWNTURN LOOMS - REUTERS
China’s daily coal output in April jumped 11% from the same month a year earlier, boosted by Beijing’s order to increase supply to ensu ...
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- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Parry Sugars Refinery, India
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- Coal and Oil Company - UAE
- European Bulk Services B.V. - Netherlands
- Semirara Mining Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Indian Oil Corporation Limited
- Maheswari Brothers Coal Limited - India
- Holcim Trading Pte Ltd - Singapore
- PTC India Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- Renaissance Capital - South Africa
- Orica Australia Pty. Ltd.
- London Commodity Brokers - England
- Bukit Asam (Persero) Tbk - Indonesia
- Sojitz Corporation - Japan
- Eastern Energy - Thailand
- Kobexindo Tractors - Indoneisa
- Makarim & Taira - Indonesia
- Wood Mackenzie - Singapore
- Mercuria Energy - Indonesia
- Standard Chartered Bank - UAE
- Wilmar Investment Holdings
- SMG Consultants - Indonesia
- Bharathi Cement Corporation - India
- Sree Jayajothi Cements Limited - India
- Kideco Jaya Agung - Indonesia
- Electricity Authority, New Zealand
- Port Waratah Coal Services - Australia
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Simpson Spence & Young - Indonesia
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Pendopo Energi Batubara - Indonesia
- Chamber of Mines of South Africa
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Power Finance Corporation Ltd., India
- Iligan Light & Power Inc, Philippines
- Romanian Commodities Exchange
- Sical Logistics Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Georgia Ports Authority, United States
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- South Luzon Thermal Energy Corporation
- Orica Mining Services - Indonesia
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Star Paper Mills Limited - India
- SMC Global Power, Philippines
- Bukit Makmur.PT - Indonesia
- Trasteel International SA, Italy
- Tamil Nadu electricity Board
- Grasim Industreis Ltd - India
- Planning Commission, India
- Krishnapatnam Port Company Ltd. - India
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- Indian Energy Exchange, India
- Directorate General of MIneral and Coal - Indonesia
- Malabar Cements Ltd - India
- The State Trading Corporation of India Ltd
- The Treasury - Australian Government
- Antam Resourcindo - Indonesia
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Edison Trading Spa - Italy
- Cement Manufacturers Association - India
- Eastern Coal Council - USA
- CNBM International Corporation - China
- Ministry of Finance - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Binh Thuan Hamico - Vietnam
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- Kumho Petrochemical, South Korea
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Coastal Gujarat Power Limited - India
- New Zealand Coal & Carbon
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Kapuas Tunggal Persada - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Global Business Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Commonwealth Bank - Australia
- Independent Power Producers Association of India
- Sindya Power Generating Company Private Ltd
- Essar Steel Hazira Ltd - India
- Metalloyd Limited - United Kingdom
- ICICI Bank Limited - India
- OPG Power Generation Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Asmin Koalindo Tuhup - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- GVK Power & Infra Limited - India
- Central Java Power - Indonesia
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Tata Chemicals Ltd - India
- TeaM Sual Corporation - Philippines
- Interocean Group of Companies - India
- Salva Resources Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meralco Power Generation, Philippines
- Parliament of New Zealand
- ASAPP Information Group - India
- Minerals Council of Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Agrawal Coal Company - India
- Carbofer General Trading SA - India
- Barasentosa Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Kohat Cement Company Ltd. - Pakistan
- Bhoruka Overseas - Indonesia
- Vedanta Resources Plc - India
- Bukit Baiduri Energy - Indonesia
- Madhucon Powers Ltd - India
- Dalmia Cement Bharat India
- Aditya Birla Group - India
- PetroVietnam Power Coal Import and Supply Company
- San Jose City I Power Corp, Philippines
- Goldman Sachs - Singapore
- Latin American Coal - Colombia
- GAC Shipping (India) Pvt Ltd
- Indo Tambangraya Megah - Indonesia
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- CIMB Investment Bank - Malaysia
- Central Electricity Authority - India
- Ind-Barath Power Infra Limited - India
- Africa Commodities Group - South Africa
- SN Aboitiz Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- Attock Cement Pakistan Limited
- Singapore Mercantile Exchange
- PNOC Exploration Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Karaikal Port Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Aboitiz Power Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- McConnell Dowell - Australia
- Deloitte Consulting - India
- PowerSource Philippines DevCo
- Energy Development Corp, Philippines
- Borneo Indobara - Indonesia
- Banpu Public Company Limited - Thailand
- Thai Mozambique Logistica
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coalindo Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Australian Coal Association
- Rio Tinto Coal - Australia
- Electricity Generating Authority of Thailand
- Merrill Lynch Commodities Europe
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Savvy Resources Ltd - HongKong
- Rashtriya Ispat Nigam Limited - India
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Kepco SPC Power Corporation, Philippines
- Petron Corporation, Philippines
- Larsen & Toubro Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement PLC, Thailand
- Manunggal Multi Energi - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Xindia Steels Limited - India
- Bulk Trading Sa - Switzerland
- GMR Energy Limited - India
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Toyota Tsusho Corporation, Japan
- Mintek Dendrill Indonesia
- Anglo American - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- The University of Queensland
- Indonesian Coal Mining Association
- Billiton Holdings Pty Ltd - Australia
- Australian Commodity Traders Exchange
- Timah Investasi Mineral - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Siam City Cement - Thailand
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
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