Commodities

and Energy
Titel
Macro Research 24 June 2015

Continued low inflation pressure from commodity markets

Swedbanks Total Commodity Price Index, 2010=100, USD

Swedbanks Total Commodity Price Index rose by 5.9%

in May in USD terms compared with April. The May
increase was mainly due to higher crude oil prices,
which climbed 7.1%. Metal prices rose, but by a more
modest 1.7%, while the downturn for commodity-related
food prices continued as they fell for the sixth
consecutive month, down 0.6% in May vs. April. The
increase in the commodity index was also due to a
weaker US dollar.

We expect a continued surplus of crude oil. A

permanent agreement between the US Security Council
and Iran could be reached by June 30. This would clear
the way for Iranian oil exports, which today are tightly
restricted by UN trade sanctions.

Metal prices are expected to diverge. Production limits

and the Chinese stimulus are lifting prices. Zinc is one
of the metals where inventories have shrunk to their
lowest level in five years.

Upward revisions to food production forecasts for 2015

after last years record harvests are placing broad
pressure on prices in USD terms. Food prices have
trended downward since 2012.

Swedbank

Persistent oil surplus

Oil prices rose this spring, but the global market still
faces a significant surplus, which we expect will
keep prices in check. Global demand has been
revised upward by the EIA for 2015 and 2016, but
wont keep pace with the projected increase in
crude supplies. We estimate the average price for
Brent crude at USD 61 per barrel this year and just
over USD 70 in 2016, an upward revision
compared with the Swedbank Economic Outlook in
April (USD 54.50 and USD 66.50)
The OPEC countries voted unanimously at their
June meeting to maintain current production
quotas, corresponding to 30 million barrels a day.
This means that Saudi Arabias strategy to take
market share from high-cost producers, not least
the US, has gained greater support among the
organizations 12 member nations.
Its not only in Saudi Arabia that production rising.
In Iraq, Libya and Iran crude production has grown
significantly in recent months. As a whole, actual
production from OPEC countries has exceeded
establish quotas by a million barrels a day in recent

1 of 5

economies, where the PMI has fallen below the 50

mark.

months. At the same time a resolution to Irans

nuclear program is nearing closer. A permanent
agreement between the US Security Council and
Iran could be reached by June 30. This would clear
the way for Iranian oil exports, which today are
tightly restricted by UN trade sanctions. The parties
remain far apart on several issues, however,
including when and how quickly the sanctions will
be removed.

Nickel, copper and zinc saw the biggest gains in

May, while aluminum prices fell. Iron ore prices
also recovered slightly after having been cut in half
since the beginning of 2014.
Metal price trend since Jan 2014=100
The drop in metal prices has been slowed more by
production cutbacks and fewer new investments in
the mining industry than by stronger demand. This
has led to shrinking inventories, but with big
differences between metals. Zinc inventories are at
a five-year low. Planned cutbacks at zinc mines in
the second half of 2015 and next year should
provide continued support for higher prices. Nickel
inventories have gone the opposite way and in May
reached record-high levels with the risk of a price
drop going forward. Aluminum is following a similar
trend, with low coal prices leading to higher
Chinese aluminum production.

Oil production, millions barrels/day

Metal prices since January 2014=100

Increased Iranian oil exports would lead to an even
greater surplus and lower prices than currently
forecast. Doubling exports to 2 million barrels a
day, as some analysts predict, would apply
significant downward pressure on prices. Others
are taking a more cautious view. They feel that the
years of sanctions and their impact on Iranian
production capacity, the lack of new investment
and insufficient distribution channels for higher
exports could delay the impact of higher Iranian
production on the global oil market. Unfettered
Iranian access to the global market would probably
be enough to reduce prices, though, especially
considering Irans major oil assets and future
production capacity. We expect a slow trickle of
Iranian oil on the global market, but would also note
that the risks for prices in this picture are on the
downside.

The Chinese governments stimulus partly through

increased infrastructure investment should raise
metal prices, but to a different degree for different
metals. Infrastructure investments tend to benefit
steel and cement rather than copper, which is more
dependent on housing construction. Since the
Chinese housing market is seeing excess supply
and falling prices, the stimulus wont help copper
prices from a demand perspective.

Swedbanks oil price forecast, Brent

130
120
110
100

We are sticking to our prediction that metal prices

will recover in 2015-2016 in the wake of lower
production capacity.

90
80
70

Metal inventories, millions of tons

60
50
40
2010q1 2010q4 2011q3 2012q2 2013q1 2013q4 2014q3 2015q2 2016q1 2016q4

Ton (metric) (millions)

Diverging metal prices

In May industrial metals other than iron ore rose by
nearly 2% in USD terms compared with April, the
second month in a row prices rose. Despite
trending higher in recent months, prices have been
weaker than we forecast this spring, reflecting the
sluggish global recovery. The global PMI index for
manufacturing, which was 51.2 in May, hasnt
accelerated in recent months on the contrary.
The slowdown has been most evident in emerging
2 (5)

Ton (metric)

Source: Swedbank

Increased supplies are pressuring food prices

Swedbanks global food price forecast, 2010=100

Food prices fell by 0.6% in May compared with April. This

was the sixth consecutive month that prices fell, part of the
reason why global food inflation remains limited. The decline
in May means that the Commodity Food Price Index fell to
the lowest level since 2009.

140
130
120
110
100

The slowdown continued in May, when grain prices fell by

nearly 3% compared with April. Last years record harvests
and rising inventories are putting pressure on grain prices,
which have trended lower since 2012. This trend is
reinforced by a stronger dollar since the beginning of the
year. In SEK terms food prices have been slightly higher
than last year, but in May they fell when the krona
appreciated against the dollar. Tropical beverages, including
coffee and tea, recovered slightly in April and May, but from
low levels. Favorable supply factors and rising inventories
also contributed to the low price levels.

90
80
70
60
2009:01:00

2010:01:00

2011:01:00

2012:01:00

2013:01:00

2014:01:00

2015:01:00

2016:01:00

Source: Swedbank

Swedbanks Commodity Price Index is based on the composition of Swedish

commodity imports, with crude oil carrying the heaviest weight in the index. The
weights in the Commodity Price Index are shown below for each main group.

Pressure on food prices doesnt seem to be changing in the

short term. Global grain production has been revised higher
and is expected to reach a high level of 2,524 million tons in
2015, only 1% below the record year of 2014, according to
the Food and Agriculture Organization (FAO) of the United
Nations. For example, wheat production has been adjusted
upward by 4 million tons, mainly due to expectations of
better harvests in North America.

Food

6.9

Agricultural commodities

9.6

Coal

3.0

Global food and crude oil prices, 2010=100

Total

100.0

Non-ferrous metals
Ferrous ore/scrap
Crude oil

10.5
3.7
66.3

Macro Research

Index

Jrgen Kennemar
Tel: +46 8 700 9804
e-mail: [email protected]

Falling food prices during the first quarter and rising

inventories are part of the reason why we expect a bigger
average price decline for foods in 2015 than previously
forecast (-15% vs. -9% in USD).
The high production level will probably be more difficult to
maintain after the big volume increases in recent years.
Lower food prices also reduce the incentive to expand
production, which will mean a smaller inventory buildup
going forward. As a whole, this should lead to higher global
prices next year.
The following diagram shows Swedbanks forecast of global
food prices in USD. Aside from weather events, currency
markets could also impact prices. Expectations that the
Federal Reserve will raise interest rates during the second
half of the year and expansive monetary policy in Europe
suggest a strong dollar, thereby having a moderating effect
on commodity prices.

3 (5)

Swe dba nks R va ruprisinde x

Ba s r 2000

Totalt inkl energi

1 mn procent
12 mn procent

Totalt exkl energi

1 mn procent
12 mn procent

Industrirvaror

i SEK

Swe dba nks R va ruprisinde x

3.2015

4.2015

5.2015

187,2

201,1

205,7

-2,1

7,4

2,3

-23,0

-19,8

-18,4

177,2

177,3

175,8

-2,1

0,0

-0,8

4,3

-0,1

1,2

175,6

175,3

175,6

-1,6

-0,1

0,2

1 mn procent
12 mn procent
va ra v ma ssa
1 mn procent
12 mn procent

4,4

-0,2

2,6

820,2

808,7

773,5

-0,2

-1,4

-4,4

27,9

23,0

17,2

Icke-jrnmetaller

179,3

184,7

181,4

1 mn procent
12 mn procent
va ra v koppa r
1 mn procent
12 mn procent
va ra v a luminium
1 mn procent
12 mn procent
va ra v bly
1 mn procent
12 mn procent
va ra v zink
1 mn procent
12 mn procent
va ra v nicke l
1 mn procent
12 mn procent
j rnma lm och skrot
1 mn procent
12 mn procent

Energirvaror
1 mn procent
12 mn procent
va ra v kol
1 mn procent
12 mn procent
va ra v r olja
1 mn procent
12 mn procent

Livsmedel
1 mn procent
12 mn procent
va ra v ka ffe
1 mn procent
12 mn procent

i U SD

Ba s r 2000

1,0

3,0

-1,8

27,3

23,4

19,6

5491,7

5661,1

5705,3

6,0

3,1

0,8

18,2

19,2

16,0

1642,5

1706,2

1633,4

-0,7

3,9

-4,3

38,4

32,5

30,8

1653,9

1877,7

1814,4

0,9

13,5

-3,4

15,5

26,5

21,1

1880,1

2072,2

2070,7

-1,6

10,2

-0,1

34,0

43,4

40,7

12736,1

12001,9

12216,0

-3,5

-5,8

1,8

16,8

-2,9

-12,2

282,8

267,2

282,7

-6,5

-5,5

5,8

-23,4

-30,9

-20,4

191,7

211,7

218,9

-2,2

10,4

3,4

-30,5

-25,2

-23,7

225,6

210,1

216,3

-4,5

-6,9

3,0

13,4

3,9

6,1

190,1

211,8

219,0

-2,0

11,4

3,4

-31,9

-26,2

-24,6

182,9

184,0

176,6

-3,6

0,6

-4,1

3,9

0,1

-3,2

117,7

121,0

111,9

-8,1

2,8

-7,5

2,4

-0,4

-4,3

Totalt inkl energi

1 mn procent
12 mn procent

Totalt exkl energi

1 mn procent
12 mn procent

Industrirvaror

4.2015

5.2015

202,0

214,2

226,9

-4,1

6,0

5,9

-42,1

-39,2

-35,7

191,2

188,8

193,9

-4,0

-1,3

2,7

-21,6

-24,3

-20,3

189,4

186,7

193,7

-3,6

-1,5

3,8

1 mn procent
12 mn procent
va ra v ma ssa
1 mn procent
12 mn procent

-21,5

-24,3

-19,2

885,0

861,1

853,2

-2,2

-2,7

-0,9

-3,9

-6,8

-7,7

Icke-jrnmetaller

193,5

196,7

200,1

1 mn procent
12 mn procent
va ra v koppa r
1 mn procent
12 mn procent
va ra v a luminium
1 mn procent
12 mn procent
va ra v bly
1 mn procent
12 mn procent
va ra v zink
1 mn procent
12 mn procent
va ra v nicke l
1 mn procent
12 mn procent
j rnma lm och skrot
1 mn procent
12 mn procent

Energirvaror
1 mn procent
12 mn procent
va ra v kol
1 mn procent
12 mn procent
va ra v r olja
1 mn procent
12 mn procent

Livsmedel
1 mn procent
12 mn procent
va ra v ka ffe
1 mn procent
12 mn procent

4 (5)

3.2015

-1,0

1,6

1,7

-4,3

-6,5

-5,7

5925,5

6028,0

6293,7

3,9

1,7

4,4

-11,1

-9,6

-8,6

1772,3

1816,8

1801,8

-2,6

2,5

-0,8

4,1

0,4

3,0

1784,6

1999,4

2001,5

-1,1

12,0

0,1

-13,2

-4,1

-4,6

2028,6

2206,5

2284,3

-3,5

8,8

3,5

0,7

8,7

10,8

13742,2

12779,8

13475,7

-5,4

-7,0

5,4

-12,2

-26,4

-30,8

305,1

284,5

311,8

-8,4

-6,8

9,6

-42,4

-47,6

-37,3

206,8

225,4

241,5

-4,1

9,0

7,1

-47,8

-43,3

-39,9

243,5

223,7

238,6

-6,4

-8,1

6,7

-14,8

-21,3

-16,4

205,2

225,5

241,6

-4,0

9,9

7,1

-48,8

-44,0

-40,6

197,4

196,0

194,8

-5,5

-0,7

-0,6

-21,9

-24,2

-23,7

127,0

128,8

123,5

-10,0

1,4

-4,2

-23,0

-24,5

-24,6

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5 (5)