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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, 23 February 24
STRONG OUTLOOK FOR THE TANKER MARKET IN 2024 AND BEYOND - DNV
Several factors have aligned over the past two years to create a robust and profitable market for tanker owners, which is expected to drive newbuil ...
Friday, 23 February 24
AUSTRALIAN COAL FLOWS TO ASIA HOVER ABOVE LAST YEAR’S VOLUME TONNES - SIGNAL GROUP
In the final days of February, the dry bulk freight market appeared to maintain a relatively stable momentum, particularly evident in the large ves ...
Friday, 23 February 24
RUSSIAN COAL SHIPMENTS FALL 14% AS SANCTIONS BITE - BIMCO
During the first seven weeks of 2024, Russian coal shipments have fallen 14% y/y. Volumes have gradually declined since October 2023 when logistica ...
Thursday, 22 February 24
BIMCO PUBLISHES SHIP FINANCING FORMS TO ENSURE UNINTERRUPTED USE OF SHIPS
BIMCO has published two standard Quiet Enjoyment Letters (QELs), the first standard form QELs available to the industry, to offer a tool that can e ...
Monday, 19 February 24
METALS INVESTMENT: THE DARKEST HOUR IS JUST BEFORE THE DAWN - WOOD MACKENZIE
Things often seem at their worst just before they get better. In terms of meeting our net zero 2050 scenario, we’ve reached a watershed momen ...
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Showing 31 to 35 news of total 6871 |
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- Energy Development Corp, Philippines
- Eastern Energy - Thailand
- Lanco Infratech Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Attock Cement Pakistan Limited
- Directorate Of Revenue Intelligence - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Coal Blending Company Limited - Australia
- Jaiprakash Power Ventures ltd
- Singapore Mercantile Exchange
- Indian Oil Corporation Limited
- Samtan Co., Ltd - South Korea
- Coal and Oil Company - UAE
- Planning Commission, India
- Kepco SPC Power Corporation, Philippines
- Sical Logistics Limited - India
- Tata Chemicals Ltd - India
- Thiess Contractors Indonesia
- Carbofer General Trading SA - India
- Kumho Petrochemical, South Korea
- Oldendorff Carriers - Singapore
- Deloitte Consulting - India
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Kideco Jaya Agung - Indonesia
- Makarim & Taira - Indonesia
- Altura Mining Limited, Indonesia
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
- PTC India Limited - India
- Indogreen Group - Indonesia
- Georgia Ports Authority, United States
- Chamber of Mines of South Africa
- Cement Manufacturers Association - India
- Vedanta Resources Plc - India
- Trasteel International SA, Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- LBH Netherlands Bv - Netherlands
- CNBM International Corporation - China
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Neyveli Lignite Corporation Ltd, - India
- Krishnapatnam Port Company Ltd. - India
- Edison Trading Spa - Italy
- Bukit Makmur.PT - Indonesia
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- GMR Energy Limited - India
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Sidhee Cement - India
- Eastern Coal Council - USA
- European Bulk Services B.V. - Netherlands
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Marubeni Corporation - India
- Kapuas Tunggal Persada - Indonesia
- Petron Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parliament of New Zealand
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- TeaM Sual Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- PowerSource Philippines DevCo
- Global Business Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- International Coal Ventures Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Australian Coal Association
- The University of Queensland
- Alfred C Toepfer International GmbH - Germany
- Parry Sugars Refinery, India
- Wood Mackenzie - Singapore
- Ministry of Transport, Egypt
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Grasim Industreis Ltd - India
- Barasentosa Lestari - Indonesia
- Bhatia International Limited - India
- South Luzon Thermal Energy Corporation
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- New Zealand Coal & Carbon
- The State Trading Corporation of India Ltd
- Riau Bara Harum - Indonesia
- White Energy Company Limited
- Straits Asia Resources Limited - Singapore
- Australian Commodity Traders Exchange
- Sinarmas Energy and Mining - Indonesia
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Indika Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- Anglo American - United Kingdom
- Central Java Power - Indonesia
- Indo Tambangraya Megah - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Intertek Mineral Services - Indonesia
- Central Electricity Authority - India
- VISA Power Limited - India
- Interocean Group of Companies - India
- Posco Energy - South Korea
- IEA Clean Coal Centre - UK
- Heidelberg Cement - Germany
- Ambuja Cements Ltd - India
- Power Finance Corporation Ltd., India
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Siam City Cement - Thailand
- The Treasury - Australian Government
- Offshore Bulk Terminal Pte Ltd, Singapore
- Tamil Nadu electricity Board
- Bhoruka Overseas - Indonesia
- Formosa Plastics Group - Taiwan
- GVK Power & Infra Limited - India
- Latin American Coal - Colombia
- Asmin Koalindo Tuhup - Indonesia
- Videocon Industries ltd - India
- MS Steel International - UAE
- Price Waterhouse Coopers - Russia
- Iligan Light & Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Baramulti Group, Indonesia
- Commonwealth Bank - Australia
- Port Waratah Coal Services - Australia
- Romanian Commodities Exchange
- Bulk Trading Sa - Switzerland
- Bukit Asam (Persero) Tbk - Indonesia
- Indonesian Coal Mining Association
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- Bhushan Steel Limited - India
- Minerals Council of Australia
- Merrill Lynch Commodities Europe
- Bank of Tokyo Mitsubishi UFJ Ltd
- Wilmar Investment Holdings
- Gujarat Mineral Development Corp Ltd - India
- Vizag Seaport Private Limited - India
- SMG Consultants - Indonesia
- Ministry of Mines - Canada
- TNB Fuel Sdn Bhd - Malaysia
- Rio Tinto Coal - Australia
- SMC Global Power, Philippines
- Global Green Power PLC Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Binh Thuan Hamico - Vietnam
- Indian Energy Exchange, India
- Kobexindo Tractors - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Star Paper Mills Limited - India
- Africa Commodities Group - South Africa
- Meenaskhi Energy Private Limited - India
- Medco Energi Mining Internasional
- Uttam Galva Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Sakthi Sugars Limited - India
- Coalindo Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Ministry of Finance - Indonesia
- Simpson Spence & Young - Indonesia
- Renaissance Capital - South Africa
- Bharathi Cement Corporation - India
- Independent Power Producers Association of India
- Madhucon Powers Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Mercator Lines Limited - India
- Ind-Barath Power Infra Limited - India
- Semirara Mining Corp, Philippines
- Mercuria Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Dalmia Cement Bharat India
- Pendopo Energi Batubara - Indonesia
- Larsen & Toubro Limited - India
- Metalloyd Limited - United Kingdom
- Sree Jayajothi Cements Limited - India
- CIMB Investment Bank - Malaysia
- Orica Australia Pty. Ltd.
- Savvy Resources Ltd - HongKong
- Mjunction Services Limited - India
- PNOC Exploration Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Aditya Birla Group - India
- Karbindo Abesyapradhi - Indoneisa
- Electricity Authority, New Zealand
- Meralco Power Generation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- ICICI Bank Limited - India
- Coastal Gujarat Power Limited - India
- IHS Mccloskey Coal Group - USA
- Miang Besar Coal Terminal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Agrawal Coal Company - India
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Ceylon Electricity Board - Sri Lanka
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- Manunggal Multi Energi - Indonesia
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