Prices have risen 30-50% in the last three months.
The prices of commodities have risen 30-50 per cent in the past three months. The key driver till now was return of global liquidity and risk appetite from early June, when the markets decided the European crisis was almost over. Some profit-booking happened over the last couple of days.
Now there is news that may fuel the rally. China’s import data for August suggest that “the policy-induced slowdown may be bottoming. Overall, the environment for commodity demand in China has re-emerged and improved significantly in the past few months and that is reflected in August’s commodity trade data, which show a rebound in base metals and oil imports and a particularly noteworthy rise in corn imports,” said Barclays Capital’s commodity research analyst Kevin Norrish.
This is an interesting trend, since August is when most commodities’ imports surge and exports fall. During the past six months or so, imports were falling on the back of measures to ensure soft-landing of the economy and a cut in export incentives to support the local industry.
However, the trend has started reversing in the past couple of months and China’s reviving demand, along with huge liquidity flows, has resulted in commodities rising 30-50 per cent from the bottom seen in early June. The increase in agri commodities such as wheat, corn, sugar and cotton can be attributed to falling yields. The prices of these commodities are also up 30-50 per cent in past three months. Corn is the latest one, with yield and crop expected to fall in the US and China’s imports rising faster. Barclays’ analyst said, “Corn imports hit an eye-catching 432,000 tonnes, more than double the previous month’s total. China’s corn imports are on target to their highest for 15 years, raising questions over whether China is now turning into a structural net importer of corn to meet its rapidly rising domestic demand.” The S&P GSCI Agricultural Index has jumped 43 per cent since early June.
| HIGH ON DRAGON’S APPETITE | |||
| Commodity | June 08, ’10 | Sep 22, ’10 | % Chg |
| Index | |||
| S&P GSCI Agricultural Index Spot | 284.56 | 407.90 | 43.34 |
| Reuters/Jefferies CRB Index Spot | 250.08 | 278.89 | 11.52 |
| Agri commodity | |||
| Sugar #11 (World) Oct 10 ($/lb.) | 15.09 | 24.44 | 61.96 |
| Wheat Nov 10-NYSE Life London(GBP/tonne) | 101.75 | 163.25 | 60.44 |
| Corn Future(CBT) Dec 10 ($/bu.) | 3.56 | 4.98 | 39.89 |
| Low Middling Cotton Spot ($/pound) | 72.62 | 94.16 | 29.66 |
| Middling Grd Cotton Spot ($/pound) | 76.94 | 98.30 | 27.76 |
| Refined Soybean Oil -NY($/pound) | 40.67 | 46.62 | 14.63 |
| Non-agri commodity | |||
| Tin ($/tonne) | 15,830.00 | 23,175.00 | 46.40 |
| Lead ($/tonne) | 1,562.50 | 2,160.50 | 38.27 |
| Zinc ($/tonne) | 1,623.00 | 2,129.00 | 31.18 |
| Copper ($/tonne) | 6,091.00 | 7,705.50 | 26.51 |
| Nickel ($/tonne) | 17,955.00 | 22,300.00 | 24.20 |
| Aluminium ($/tonne) | 1,850.50 | 2,158.50 | 16.64 |
| Brent crude ($/bbl) | 72.09 | 77.52 | 7.53 |
| Steel CR Coil ($/tonne) | 706.00 | 708.00 | 0.28 |
| Steel HR Coil ($/tonne) | 625.00 | 615.00 | -1.60 |
| Iron Ore-China ($/tonne) Richards Bay Coal | 151.50 | 145.50 | -3.96 |
| Spot ($/tonne) | 92.41 | 84.80 | -8.24 |
| Source: Bloomberg Compiled by BS Research Bureau | |||
Even for metals, the “huge flow of liquidity into commodities is leading the bull run that started from early June, when global markets realised the European crisis is nearly over,” said Gnanasekar Thiagarajan, director at Commtrendz Research, a risk advisory firm. “Till the Federal Reserve’s easy money policy continues, the rally in commodities will continue,” he said.
According to data released by the Chinese authorities, net imports of refined copper, zinc, lead, nickel and tin were up in August compared to the previous month, while net imports of aluminium fell sharply. Implied demand trends were also positive across most metals, with copper expanding by over 20 per cent annually, following positive growth in July. In energy markets, oil imports bounced back, signifying strong underlying demand growth after last month’s softening.
Meanwhile, China remained a net importer of refined products, with most of the strength evident in residual fuel oil markets. Coal net imports also held up strongly.
