Countries & Consumers brings you the latest update on global commodity markets. In March 2012, global commodity prices of energy and food rose on a monthly basis, while metal prices declined marginally compared to February 2012. Political tensions in the Middle East kept upward pressure on global oil prices during the month, whereas signs of easing economic activity in China weighed on the prices of metals. Nevertheless, global commodity prices are expected to remain volatile during the short term.

Summary

In March 2012, the Commodity Fuel (energy) Index increased by 3.6% month-on-month (m-o-m) following a 4.5% monthly rise in February 2012. During the month, oil prices grew as political tension in the Middle East caused a higher risk premium to be priced into the commodity. Factors like speculative activity in the oil futures markets and a weaker US dollar towards the end of March 2012 also put upward pressure on oil prices during the month. On the other hand, natural gas prices from the Henry Hub Terminal, Louisiana plummeted by 25.9% m-o-m in March 2012, mainly as a result of record high inventory levels in the USA. Overall, the commodity fuel (energy) index recorded a 9.0% annual rise during the month, maintaining concerns about a potential increase in inflationary pressures that could have a negative impact on global economic growth.

The IMF Agricultural Raw Materials Index rose for the third consecutive month in March 2012, increasing by 1.3% over February 2012 mainly as a result of a surge in the price of hides. Conversely, the IMF Metals Index fell for the first time in three months in March 2012, decreasing marginally by 0.1% over the previous month. Signs of easing economic activity in China put downward pressure on prices of base metals during the month, with nickel and tin registering the largest monthly price declines amongst all base metals.

On an annual basis, growth in agricultural raw materials and metals indices declined by 18.7% and 15.3% respectively in March 2012. However, Euromonitor International forecasts prices of agricultural raw materials and metals to recover in the medium term. Annual growth of 10.2% and 25.8% respectively is expected by December 2012 as global economic growth regains momentum in the second half of 2012. In the short term, prices of raw materials – including metals – are expected to remain volatile and closely linked to market sentiment regarding the global economy and China, one of the world’s largest importers of industrial inputs.

Commodities Price Index: September 2011 – September 2012

Energy

Global energy prices influence inflation and therefore impact both businesses and consumers. Rising energy prices not only lower the purchasing power of consumers, but can also lead to higher running costs and rising wages affecting the profitability of businesses.

• In March 2012, the commodity fuel (energy) index rose by 3.6% m-o-m, following a 4.5% m-o-m increase in February 2012. Political tensions in the Middle East and continuous speculative activity backed crude oil prices during the month, despite prospects of sluggish oil demand growth in 2012;

• During the same month, the average spot price of WTI Cushing and Europe Brent oil increased by 3.8% and 4.3% to reach US$106 per barrel and US$125 per barrel, respectively. The price gap between both types of oil widened to a five-month high in March 2012 as political uncertainty in the Middle East and disruptions of Iranian exports as a result of European Union (EU) sanctions caused supply concerns that pushed up the price of the Europe Brent;

• Although the short-term outlook for oil prices is expected to remain volatile due to the potential supply shocks caused by political risks, in the medium term crude oil prices are expected to follow an upward trend partly as a result of tightening global oil inventory levels. Euromonitor International forecasts average spot prices of WTI Cushing and Europe Brent oil to reach US$130 per barrel and US$147 per barrel respectively by December 2012, an annual rise of 31.3% and 36.2%, respectively;

• Natural gas prices at the Henry Hub terminal in Louisiana plummeted by 25.9% m-o-m in March 2012 to reach US$72.0 per thousand cubic metres. This is their lowest price level in 13 years as a consequence of record high inventories and mild weather in the USA which negatively impacts natural gas consumption levels.

Crude Oil Spot Prices: September 2011 – September 2012

Source: Euromonitor International from EIA

Note: (1) Brent crude is a major classification of oil, used to price two thirds of the world’s internationally traded crude oil supplies. West Texas Intermediate (WTI Cushing) also known as Texas Light Sweet, is a type of crude oil used as a benchmark in oil pricing. (2) Data refer to average monthly prices. (3) Data is not seasonally adjusted. (4) Data for the period April 2012 – September 2012 are forecasts and subject to bi-weekly revisions.

Food & Beverages

Rising food prices increase inflationary pressures and can also reduce disposable income impacting consumers around the world who spend a significant proportion of their income on essentials like food and beverages.

• In March 2012, the IMF food price index increased for the third consecutive month, rising by 2.7% m-o-m owing to higher prices of cereals and some vegetable meals and oils (mainly palm oil and soy-related products). Despite the monthly increase, the IMF food price index registered a 5.7% decline on an annual basis;

• During the same month, rice prices rose by 5.4% m-o-m to reach US$577 per metric ton, as a consequence of large purchases from markets like China and Nigeria. In March 2012, wheat prices increased by 4.0% m-o-m to reach US$292 per metric ton, due to tightening inventories and prospects of a reduced wheat planting area for the spring season in the USA;

• Chicken prices rose to their highest level in over 30 years at 92.9 US cents per pound in March 2012, recording a 1.7% increase over the previous month. Euromonitor International forecasts chicken prices to stabilise, reaching 89.4 US cents per pound by December 2012 as a consequence of slowing import demand and rising export opportunities;

• In the beverages segment, the price of coffee – ‘robusta’ variety as traded in the New York physicals market – experienced the largest monthly gain, increasing by 2.1% m-o-m to reach 114 US cents per pound in March 2012. Coffee prices rose for the second consecutive month as farmers in Vietnam held on to their coffee production for exporting, on expectations of an increase in prices.

Food Price Indices: September 2011 – September 2012

Source: Euromonitor International from IMF

Note: (1) Food Index refers to Bananas 2.4%, cereals (maize, rice, and wheat) 21.6%, meat (beef, lamb, swine meat, poultry) 22.2%, vegetable oils and protein meals (coconut oil, fishmeal, groundnuts, olive oil, palm oil, soybeans, soybean meal, soybean oil, sunflower oil) 26.3%, seafood (fish, shrimp) 19.2%, oranges 3.0%, sugar 5.4%. (2) Wheat price refers to United States, No. 1 hard red winter, ordinary protein, export price delivered at the Gulf port for prompt or 30 days shipment. (3) Cocoa price refers to New York and London, International Cocoa Organization daily price, average of the first three positions on the terminal markets of New York and London, nearest three future trading months. (4) Coffee price refers to International Coffee Organization (New York and Le Havre/Marseille markets), ICO indicator price, Robustas, average, ex-dock. (5) Sugar price refers to World, International Sugar Agreement daily price, raw, f.o.b. and stowed at greater Caribbean ports. Food pric

Metals

Base metals like aluminium, copper, lead, nickel, tin and zinc are important raw materials for any economy’s production base and their prices have a direct impact on industrial output and manufacturing industries around the world.

• The IMF metals index declined marginally by 0.1% m-o-m in March 2012, compared to the 2.5% monthly rise observed in February 2012. Signs of decelerating economic activity in China, one of the world’s largest base metal importers, put downward pressure on metal prices during the month, more than offsetting the effect of a weaker US dollar towards the end of March 2012;

• During the same month, nickel and tin prices experienced the largest monthly decline, falling by 8.5% and 5.4% over February 2012 to reach US$18,660 per metric ton and US$22,985 per metric ton, respectively. On an annual basis, nickel prices fell by 30.1% in March 2012 while tin prices decreased by 24.9%, as a result of prospects of oversupply in the global nickel and tin markets;

• Amongst base metals, copper was the only commodity to register a monthly price rise in March 2012, increasing by 0.4% m-o-m to reach US$8,471 per metric ton owing to declining global copper inventories. According to Euromonitor International forecasts, copper prices will rise to US$9,650 by December 2012 as global economic growth regains momentum towards the end of 2012. Copper has widespread uses in construction and manufacturing thus its price is highly sensitive to growth prospects of the global economy;

• On an annual basis, all base metals recorded price declines in excess of 10.9% in March 2012. During the coming months, price of base metals are expected to remain volatile and highly sensitive to market sentiment regarding prospects of growth in the global economy and especially China.

Annual Growth of Selected Metal Prices: September 2011 – September 2012

Source: Euromonitor International from IMF

Note: (1) Growth in US$ per metric ton. (2) Data is not seasonally adjusted. (3) Data for the period April 2012 – September 2012 are forecasts and subject to bi-weekly revisions.