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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, 28 June 24
INDIAN POWER STATIONS STOCKED WITH BUMPER COAL SUPPLY AS TRANSPORT WOES EASE - BUSINESS STANDARD
Even as power demand has touched a historic high of 250 gigawatts (Gw) amid sweltering heat this June, India’s power stations are stocked wit ...
Friday, 28 June 24
INDIA'S CY23 COAL USE LARGER THAN NORTH AMERICA, EUROPE COMBINED - THE HINDU
For the first time, India’s coal consumption surpassed that of North America and Europe combined in the calendar year 2023, said Energy Insti ...
Monday, 24 June 24
PLN'S FINANCIAL SUSTAINABILITY RESTS ON ACCELERATED COAL RETIREMENT AND RENEWABLES DEPLOYMENT - MUTYA YUSTIKA
On 28 May 2024, Indonesia’s national electricity utility, PT Perusahaan Listrik Negara (PLN), released its financial report for 2023. Althoug ...
Monday, 24 June 24
INDIA'S COAL-BASED POWER DEMAND AT ALL-TIME HIGH, GOVERNMENT SAYS - REUTERS
India’s demand for coal-based power has risen by 7.3% this fiscal year to an all-time high, the government said in a statement on Wednesday.
...
Monday, 24 June 24
CHINA'S COAL INDUSTRY TURNS GREENER THROUGH INNOVATIVE APPROACHES - PEOPLE'S DAILY
At an opencast mine operated by Inner Mongolia Pingzhuang Coal Group Co. Ltd., a subsidiary of CHN Energy Investment Group (CHN Energy), a 14-meter ...
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Showing 11 to 15 news of total 6871 |
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- Indonesian Coal Mining Association
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Mintek Dendrill Indonesia
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Manunggal Multi Energi - Indonesia
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- Bhushan Steel Limited - India
- Africa Commodities Group - South Africa
- Videocon Industries ltd - India
- Xindia Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Mjunction Services Limited - India
- Iligan Light & Power Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- GVK Power & Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Kobexindo Tractors - Indoneisa
- London Commodity Brokers - England
- Sojitz Corporation - Japan
- Ministry of Mines - Canada
- Barasentosa Lestari - Indonesia
- South Luzon Thermal Energy Corporation
- Karbindo Abesyapradhi - Indoneisa
- SMC Global Power, Philippines
- Attock Cement Pakistan Limited
- Parliament of New Zealand
- Vijayanagar Sugar Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- San Jose City I Power Corp, Philippines
- Standard Chartered Bank - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Borneo Indobara - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Salva Resources Pvt Ltd - India
- Sical Logistics Limited - India
- Bukit Baiduri Energy - Indonesia
- Power Finance Corporation Ltd., India
- Bhoruka Overseas - Indonesia
- Vizag Seaport Private Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indo Tambangraya Megah - Indonesia
- Coal and Oil Company - UAE
- Bangladesh Power Developement Board
- Renaissance Capital - South Africa
- Edison Trading Spa - Italy
- The University of Queensland
- Directorate Of Revenue Intelligence - India
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- Krishnapatnam Port Company Ltd. - India
- Planning Commission, India
- Marubeni Corporation - India
- TeaM Sual Corporation - Philippines
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- GMR Energy Limited - India
- Energy Development Corp, Philippines
- Cement Manufacturers Association - India
- Asmin Koalindo Tuhup - Indonesia
- Essar Steel Hazira Ltd - India
- ICICI Bank Limited - India
- MS Steel International - UAE
- Eastern Energy - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Interocean Group of Companies - India
- Pendopo Energi Batubara - Indonesia
- Bhatia International Limited - India
- Madhucon Powers Ltd - India
- Global Coal Blending Company Limited - Australia
- Coalindo Energy - Indonesia
- Chamber of Mines of South Africa
- Sakthi Sugars Limited - India
- Energy Link Ltd, New Zealand
- SN Aboitiz Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Samtan Co., Ltd - South Korea
- Anglo American - United Kingdom
- Indogreen Group - Indonesia
- Siam City Cement - Thailand
- CIMB Investment Bank - Malaysia
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Makarim & Taira - Indonesia
- Lanco Infratech Ltd - India
- New Zealand Coal & Carbon
- Electricity Authority, New Zealand
- Thai Mozambique Logistica
- Larsen & Toubro Limited - India
- The Treasury - Australian Government
- PTC India Limited - India
- CNBM International Corporation - China
- Merrill Lynch Commodities Europe
- Heidelberg Cement - Germany
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
- Kartika Selabumi Mining - Indonesia
- Intertek Mineral Services - Indonesia
- Parry Sugars Refinery, India
- Neyveli Lignite Corporation Ltd, - India
- Commonwealth Bank - Australia
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- Global Green Power PLC Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Mercuria Energy - Indonesia
- Economic Council, Georgia
- Therma Luzon, Inc, Philippines
- Vedanta Resources Plc - India
- Aboitiz Power Corporation - Philippines
- Minerals Council of Australia
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- Price Waterhouse Coopers - Russia
- Central Java Power - Indonesia
- Dalmia Cement Bharat India
- International Coal Ventures Pvt Ltd - India
- Tata Chemicals Ltd - India
- Independent Power Producers Association of India
- OPG Power Generation Pvt Ltd - India
- Riau Bara Harum - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Petrochimia International Co. Ltd.- Taiwan
- Goldman Sachs - Singapore
- Ambuja Cements Ltd - India
- Metalloyd Limited - United Kingdom
- Jindal Steel & Power Ltd - India
- Meralco Power Generation, Philippines
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Miang Besar Coal Terminal - Indonesia
- Simpson Spence & Young - Indonesia
- VISA Power Limited - India
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Deloitte Consulting - India
- Formosa Plastics Group - Taiwan
- Maharashtra Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Bahari Cakrawala Sebuku - Indonesia
- Oldendorff Carriers - Singapore
- Sarangani Energy Corporation, Philippines
- Jaiprakash Power Ventures ltd
- The State Trading Corporation of India Ltd
- Gujarat Sidhee Cement - India
- Maheswari Brothers Coal Limited - India
- Medco Energi Mining Internasional
- Mercator Lines Limited - India
- Grasim Industreis Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- IHS Mccloskey Coal Group - USA
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- Semirara Mining and Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- White Energy Company Limited
- Australian Commodity Traders Exchange
- SMG Consultants - Indonesia
- Posco Energy - South Korea
- Bharathi Cement Corporation - India
- Sindya Power Generating Company Private Ltd
- Australian Coal Association
- Electricity Generating Authority of Thailand
- Timah Investasi Mineral - Indoneisa
- Meenaskhi Energy Private Limited - India
- Toyota Tsusho Corporation, Japan
- ASAPP Information Group - India
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- Ceylon Electricity Board - Sri Lanka
- Billiton Holdings Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Aditya Birla Group - India
- Global Business Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Coastal Gujarat Power Limited - India
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- LBH Netherlands Bv - Netherlands
- Wood Mackenzie - Singapore
- PNOC Exploration Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Wilmar Investment Holdings
- European Bulk Services B.V. - Netherlands
- Trasteel International SA, Italy
- TNB Fuel Sdn Bhd - Malaysia
- IEA Clean Coal Centre - UK
- Malabar Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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