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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, 25 October 17
SHIPPING MARKET REPORT - INTERMODAL
While the majority of perspective Buyers in the dry bulk second-hand market is currently focusing on modern tonnage, there is also increased activi ...
Tuesday, 24 October 17
KOMIPO INVITED BIDS FOR MIN. 4600 NAR BLENDED SUB-BITUMINOUS COAL OF INDONESIAN ORIGIN FOR BORYEONG OR NEW BORYEONG POWER PLANT
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued an another new tender for 5,000,000 Metric Tons of blended sub-bi ...
Tuesday, 24 October 17
CHINA'S INSATIABLE APPETITE FOR THIS ENERGY COMMODITY CONTINUES STRONG - GEORGE LAZARIDIS
Crude oil prices have been seeing some support emerge this past week as supply disruptions in Iraq and a drop in US drilling has helped bolster oil ...
Friday, 20 October 17
U.S COAL PRODUCTION FELL 1.45 PER CENT WEEK OVER WEEK - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 14.9 million short ton ...
Tuesday, 17 October 17
SULPHUR 2020: COMING, READY OR NOT - ALIBRA SHIPPING
Some 70% of shipping companies surveyed say they do not believe the industry is ready for IMO’s 2020 deadline, when a global limit of 0.5% su ...
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- Iligan Light & Power Inc, Philippines
- Eastern Energy - Thailand
- Jindal Steel & Power Ltd - India
- Alfred C Toepfer International GmbH - Germany
- PNOC Exploration Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Rio Tinto Coal - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Grasim Industreis Ltd - India
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- Energy Link Ltd, New Zealand
- TeaM Sual Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Planning Commission, India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- Meralco Power Generation, Philippines
- Indika Energy - Indonesia
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Sakthi Sugars Limited - India
- Tata Chemicals Ltd - India
- Sarangani Energy Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- Oldendorff Carriers - Singapore
- Coalindo Energy - Indonesia
- IEA Clean Coal Centre - UK
- Latin American Coal - Colombia
- Siam City Cement - Thailand
- Posco Energy - South Korea
- Parry Sugars Refinery, India
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Meenaskhi Energy Private Limited - India
- Leighton Contractors Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Larsen & Toubro Limited - India
- Energy Development Corp, Philippines
- Standard Chartered Bank - UAE
- Karaikal Port Pvt Ltd - India
- Vedanta Resources Plc - India
- Tamil Nadu electricity Board
- Globalindo Alam Lestari - Indonesia
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Chamber of Mines of South Africa
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Baramulti Group, Indonesia
- Salva Resources Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Intertek Mineral Services - Indonesia
- Bulk Trading Sa - Switzerland
- ICICI Bank Limited - India
- GAC Shipping (India) Pvt Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Banpu Public Company Limited - Thailand
- Miang Besar Coal Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- India Bulls Power Limited - India
- Global Coal Blending Company Limited - Australia
- Ministry of Mines - Canada
- Kapuas Tunggal Persada - Indonesia
- Manunggal Multi Energi - Indonesia
- Riau Bara Harum - Indonesia
- Thai Mozambique Logistica
- Xindia Steels Limited - India
- Kideco Jaya Agung - Indonesia
- LBH Netherlands Bv - Netherlands
- Medco Energi Mining Internasional
- Videocon Industries ltd - India
- Deloitte Consulting - India
- International Coal Ventures Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- GN Power Mariveles Coal Plant, Philippines
- Bayan Resources Tbk. - Indonesia
- Wilmar Investment Holdings
- Metalloyd Limited - United Kingdom
- Petron Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Ceylon Electricity Board - Sri Lanka
- Bhoruka Overseas - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Mercuria Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Kaltim Prima Coal - Indonesia
- Singapore Mercantile Exchange
- Kumho Petrochemical, South Korea
- Straits Asia Resources Limited - Singapore
- GVK Power & Infra Limited - India
- Power Finance Corporation Ltd., India
- Dalmia Cement Bharat India
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- Malabar Cements Ltd - India
- Merrill Lynch Commodities Europe
- Orica Australia Pty. Ltd.
- Jaiprakash Power Ventures ltd
- San Jose City I Power Corp, Philippines
- SMG Consultants - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bangladesh Power Developement Board
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Sojitz Corporation - Japan
- Indogreen Group - Indonesia
- Global Green Power PLC Corporation, Philippines
- Central Java Power - Indonesia
- White Energy Company Limited
- Mjunction Services Limited - India
- Economic Council, Georgia
- The University of Queensland
- Uttam Galva Steels Limited - India
- PTC India Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Indian Energy Exchange, India
- Central Electricity Authority - India
- Timah Investasi Mineral - Indoneisa
- Agrawal Coal Company - India
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Parliament of New Zealand
- Indonesian Coal Mining Association
- Africa Commodities Group - South Africa
- PowerSource Philippines DevCo
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- Chettinad Cement Corporation Ltd - India
- Indian Oil Corporation Limited
- Kalimantan Lumbung Energi - Indonesia
- CNBM International Corporation - China
- Eastern Coal Council - USA
- Mintek Dendrill Indonesia
- Australian Commodity Traders Exchange
- Semirara Mining and Power Corporation, Philippines
- Interocean Group of Companies - India
- Rashtriya Ispat Nigam Limited - India
- CIMB Investment Bank - Malaysia
- Bukit Baiduri Energy - Indonesia
- Cement Manufacturers Association - India
- Australian Coal Association
- Holcim Trading Pte Ltd - Singapore
- Bhatia International Limited - India
- Trasteel International SA, Italy
- MS Steel International - UAE
- Orica Mining Services - Indonesia
- IHS Mccloskey Coal Group - USA
- The Treasury - Australian Government
- Global Business Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Savvy Resources Ltd - HongKong
- Siam City Cement PLC, Thailand
- Vizag Seaport Private Limited - India
- SN Aboitiz Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- OPG Power Generation Pvt Ltd - India
- Ministry of Finance - Indonesia
- Electricity Generating Authority of Thailand
- Borneo Indobara - Indonesia
- Georgia Ports Authority, United States
- Minerals Council of Australia
- Billiton Holdings Pty Ltd - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Barasentosa Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- South Luzon Thermal Energy Corporation
- Antam Resourcindo - Indonesia
- The State Trading Corporation of India Ltd
- Essar Steel Hazira Ltd - India
- Indo Tambangraya Megah - Indonesia
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aditya Birla Group - India
- Lanco Infratech Ltd - India
- Sical Logistics Limited - India
- GMR Energy Limited - India
- Mercator Lines Limited - India
- Renaissance Capital - South Africa
- Romanian Commodities Exchange
- Kobexindo Tractors - Indoneisa
- Formosa Plastics Group - Taiwan
- European Bulk Services B.V. - Netherlands
- Maharashtra Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Bhushan Steel Limited - India
- Coastal Gujarat Power Limited - India
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Heidelberg Cement - Germany
- Aboitiz Power Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Makarim & Taira - Indonesia
- Electricity Authority, New Zealand
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- McConnell Dowell - Australia
- Sindya Power Generating Company Private Ltd
- Binh Thuan Hamico - Vietnam
- Sinarmas Energy and Mining - Indonesia
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