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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, 24 June 24
PHILIPPINES COAL SUPPLY ENOUGH UNTIL 2030 - PHILSTAR GLOBAL
The country’s existing coal-fired power plants are sufficient to ensure enough base load capacity in the next six years, Energy Secretary Rap ...
Friday, 14 June 24
NEXTDECADE, SAUDI ARAMCO SIGN 20-YEAR LNG SUPPLY DEAL - REUTERS
U.S. liquefied natural gas (LNG) provider NextDecade has signed a non-binding agreement with Saudi Aramco 2222.SE to supply 1.2 million tonnes per ...
Friday, 14 June 24
NEWBUILDING PRICES CLIMB 3% TO HIGHEST LEVEL IN 16 YEARS - NIELS RASMUSSEN
“Since the start of the year, newbuilding prices have risen 3% to their highest level since 2008. Compared to their most recent low in late 2 ...
Friday, 14 June 24
INDIA TARGETS HIGHER DOMESTIC COAL PRODUCTION, REDUCED IMPORTS: GOVT - REUTERS
India wants to reduce coal imports and increase domestic production, federal coal minister G. Kishan Reddy said on Thursday.
The cou ...
Thursday, 13 June 24
US LNG TO ASIA FOR POWER GENERATION EXPECTED TO CUT EMISSIONS VERSUS COAL - RYSTAD ENERGY
The value-chain emissions of liquified natural gas (LNG) are lower on average than for coal-fired power generation, even when the fuel is shipp ...
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Showing 16 to 20 news of total 6871 |
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- SMC Global Power, Philippines
- Videocon Industries ltd - India
- Indogreen Group - Indonesia
- Wood Mackenzie - Singapore
- Baramulti Group, Indonesia
- Therma Luzon, Inc, Philippines
- Orica Mining Services - Indonesia
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- Price Waterhouse Coopers - Russia
- Bukit Baiduri Energy - Indonesia
- Africa Commodities Group - South Africa
- Georgia Ports Authority, United States
- Vedanta Resources Plc - India
- Orica Australia Pty. Ltd.
- Neyveli Lignite Corporation Ltd, - India
- Antam Resourcindo - Indonesia
- Coal and Oil Company - UAE
- Renaissance Capital - South Africa
- Bukit Makmur.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Bhatia International Limited - India
- Krishnapatnam Port Company Ltd. - India
- Karaikal Port Pvt Ltd - India
- Goldman Sachs - Singapore
- Medco Energi Mining Internasional
- New Zealand Coal & Carbon
- Central Electricity Authority - India
- Kartika Selabumi Mining - Indonesia
- Tamil Nadu electricity Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kobexindo Tractors - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parry Sugars Refinery, India
- Leighton Contractors Pty Ltd - Australia
- McConnell Dowell - Australia
- Bhushan Steel Limited - India
- Dalmia Cement Bharat India
- Sinarmas Energy and Mining - Indonesia
- Singapore Mercantile Exchange
- Binh Thuan Hamico - Vietnam
- GMR Energy Limited - India
- Jaiprakash Power Ventures ltd
- Coastal Gujarat Power Limited - India
- Bulk Trading Sa - Switzerland
- Savvy Resources Ltd - HongKong
- Sojitz Corporation - Japan
- IHS Mccloskey Coal Group - USA
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Coal Council - USA
- Kohat Cement Company Ltd. - Pakistan
- Central Java Power - Indonesia
- Banpu Public Company Limited - Thailand
- IEA Clean Coal Centre - UK
- Meenaskhi Energy Private Limited - India
- Intertek Mineral Services - Indonesia
- Samtan Co., Ltd - South Korea
- GAC Shipping (India) Pvt Ltd
- Holcim Trading Pte Ltd - Singapore
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Independent Power Producers Association of India
- Bhoruka Overseas - Indonesia
- Sical Logistics Limited - India
- Directorate Of Revenue Intelligence - India
- Semirara Mining Corp, Philippines
- Deloitte Consulting - India
- Essar Steel Hazira Ltd - India
- Kepco SPC Power Corporation, Philippines
- Xindia Steels Limited - India
- Indika Energy - Indonesia
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- Vizag Seaport Private Limited - India
- Simpson Spence & Young - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Larsen & Toubro Limited - India
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Planning Commission, India
- Bharathi Cement Corporation - India
- Cement Manufacturers Association - India
- Indian Energy Exchange, India
- Madhucon Powers Ltd - India
- Kaltim Prima Coal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Authority, New Zealand
- Ministry of Transport, Egypt
- Altura Mining Limited, Indonesia
- AsiaOL BioFuels Corp., Philippines
- Heidelberg Cement - Germany
- Globalindo Alam Lestari - Indonesia
- Eastern Energy - Thailand
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Latin American Coal - Colombia
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement PLC, Thailand
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Edison Trading Spa - Italy
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- San Jose City I Power Corp, Philippines
- Mjunction Services Limited - India
- Barasentosa Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Formosa Plastics Group - Taiwan
- London Commodity Brokers - England
- PetroVietnam Power Coal Import and Supply Company
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Lanco Infratech Ltd - India
- Mercator Lines Limited - India
- Indonesian Coal Mining Association
- Ministry of Mines - Canada
- Sindya Power Generating Company Private Ltd
- Mercuria Energy - Indonesia
- Thai Mozambique Logistica
- ICICI Bank Limited - India
- PowerSource Philippines DevCo
- Ind-Barath Power Infra Limited - India
- Indian Oil Corporation Limited
- Anglo American - United Kingdom
- Kapuas Tunggal Persada - Indonesia
- Iligan Light & Power Inc, Philippines
- White Energy Company Limited
- Aboitiz Power Corporation - Philippines
- Trasteel International SA, Italy
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- Chamber of Mines of South Africa
- Meralco Power Generation, Philippines
- SN Aboitiz Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Electricity Generating Authority of Thailand
- Indo Tambangraya Megah - Indonesia
- Oldendorff Carriers - Singapore
- Ministry of Finance - Indonesia
- Cigading International Bulk Terminal - Indonesia
- MS Steel International - UAE
- Makarim & Taira - Indonesia
- Interocean Group of Companies - India
- Straits Asia Resources Limited - Singapore
- The Treasury - Australian Government
- Bangladesh Power Developement Board
- Aditya Birla Group - India
- Timah Investasi Mineral - Indoneisa
- Wilmar Investment Holdings
- The State Trading Corporation of India Ltd
- Uttam Galva Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Petron Corporation, Philippines
- Marubeni Corporation - India
- Jindal Steel & Power Ltd - India
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- PNOC Exploration Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- SMG Consultants - Indonesia
- Star Paper Mills Limited - India
- Sree Jayajothi Cements Limited - India
- OPG Power Generation Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Power Finance Corporation Ltd., India
- CIMB Investment Bank - Malaysia
- Global Business Power Corporation, Philippines
- CNBM International Corporation - China
- VISA Power Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ASAPP Information Group - India
- Rashtriya Ispat Nigam Limited - India
- The University of Queensland
- Port Waratah Coal Services - Australia
- Metalloyd Limited - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Grasim Industreis Ltd - India
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- Commonwealth Bank - Australia
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Australian Coal Association
- Chettinad Cement Corporation Ltd - India
- Gujarat Sidhee Cement - India
- Attock Cement Pakistan Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Economic Council, Georgia
- Rio Tinto Coal - Australia
- Semirara Mining and Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Agrawal Coal Company - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- European Bulk Services B.V. - Netherlands
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