Energy & Commodities

Monthly newsletter from Swedbank’s Economic Research Department

by Jörgen Kennemar No. 8 • 17 September 2010

Commodity prices defy fears of a weaker global economy

• Swedbank’s Total Commodity Price Index rose for the second consecutive
month. This means that the index has risen by slightly over 3% this year in
US dollars. Metal prices increased broadly in August, which shows that
global industry is still maintaining a fairly good growth rate.
• Although global growth prospects have been downgraded for 2011, emerging
economies will still need industrial metals, though at a slower rate. The prices
of copper and lead, which are in fairly tight supply, could rise further. For
industrial metals, where there is excess supply, prices will stabilise or fall,
especially since the global inventory build-up is expected to taper off.
• Record-high gold prices are an indication of growing uncertainty about the
strength of the global economy. Large public deficits and fears of another
slowdown have caused more investors to turn to gold. We do not believe that
gold prices have peaked, and that this will remain true as long as global
imbalances remain unresolved.
• Unfavourable weather conditions and lower production contributed to a rise in
the food price index for the third consecutive month. Grain prices have risen
by 23% in two months. The risk of a new global food crisis after several years
of good harvests and expanded production capacity is unlikely, however.
Swedbank´s Total Commodity Prices Index, USD, index 2000=100
500
Energy
450 commodities

400 Total index

350 Total Index excl Energy

commodities
Index

300

250

200

150
Food
100
05 06 07 08 09 10
Källa: Swedbank

Swedbank’s Total Commodity Price Index rose by
1.9% in August compared with July, measured in
dollars. This marks the second consecutive month
that the index has risen, but it still has not returned
to the levels of April, before the Greek crisis
intensified. The index has been driven by
substantial, broad-based price gains for industrial
metals, which in August climbed an average of
8.2%. Lead and zinc accounted for the biggest price
increases at 12.6% and 10.8%, respectively,
followed by nickel and copper.
Declining metal inventories indicate that global
demand remains strong at the same time that there

Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000.
E-mail: ek.sekr@swedbank.se www.swedbank.se
Legally responsible publisher: Cecilia Hermansson. +46-8-5859 7720.
Magnus Alvesson. +46-8-5859 3341. Jörgen Kennemar. +46-8-5859 7730.
 Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued

No. 8 • 17 September 2010

are signs of supply restrictions. This is especially Our forecast of a slowdown in global growth during
true of copper, where production has been limited in the second half year, when the temporary inventory
2010 due to technical problems, strikes and lower build-up gradually subsides at the same time that
capacity utilisation than expected. A further economic policies are tightened in several
slowdown in the Chinese economy increases the countries, also assumes a slower price rise for
likelihood that any increase in the price of copper metals. This is especially true of those that are in
will be held in check, though this is not yet reflected oversupply. For copper and tin, where supply is
in the physical market. Copper inventories have relatively limited, prices may continue to rise,
fallen by 30% in four months and are at the lowest despite that emerging economies are expected to
level since the autumn of last year. Supply grow at a slightly slower pace.
conditions are not as tight as in 2007-2008,
however. Stock levels, base metals, million tons
1.0 225000

0.9 200000
Signs of weaker growth in steel production grew 0.8
Nickel, right scale
175000
during the summer. This is particularly true of 0.7 150000

China, which currently accounts for nearly half of

Ton (metric) (millions)

0.6 Copper 125000

Ton (metric)
global production. In July Chinese steel production 0.5 Zink 100000

rose by a modest 2% on an annual basis, its lowest 0.4 75000

0.3 50000
growth rate since early 2009. It should be noted, 0.2 25000
however, that slowdown was from high levels after 0.1 0
Lead
last year’s big stimulus package, which drove up 0.0 -25000
00 01 02 03 04 05 06 07 08 09 10
production. Lower Chinese growth is the result of Source: LME, Reuters EcoWin

the credit constraints that have been put in place to Energy prices turned higher in August after three
avoid a future overheating, especially in the housing months of decline. The price of oil has fluctuated in
market. the range of 70-80 dollars a barrel in 2010. This is a
level that OPEC feels will not sabotage the
Steel production in China and metal prices economic recovery while at the same time
60 125
Prices on non-ferrous stimulating new production. The global oil market
50 metals, %-annual rate, ri 100
is facing an oversupply with inventories still higher
40 75
than the average for the last five years. Continued
30 50
high oil consumption in emerging economies, led by
%-change

%-change

20
10
0
Chines steel production, %-annual
-10 rate, left scale
-20
00 01 02 03 04 05
Weaker steel production in China will affect the
price of other raw materials such as iron ore, nickel
and coal, which are key inputs in steel production.
In August Chinese imports of iron ore fell to the
lowest level since 2009. A lower spot price for iron
ore will create price pressure when contractual ore
prices are set, which is now done quarterly rather
than annually. Nickel, which is used in the
production of stainless steel, has not yet been
affected by lower steel production, but the risk of
lower prices still remains. The market for
aluminium is still facing an oversupply, partly due
to higher aluminium production in China. Although
aluminium has had a weaker price trend in 2010
than other metals, there is a risk of a sizable
correction unless the global economy strengthens.
Zinc and lead are other industrial metals with
growing inventories due to increased mineral
production.
25
Asia, has been more than compensated by
0
increased crude production within and outside
-25
OPEC. We expect global demand to rise in the year
-50
ahead, though at a slower pace. The International
06 07 08 09 10
-75
Energy Agency (IEA) is predicting that global oil
Source: Reuters EcoWin consumption will grow by 1.5% in 2011, in pace
with the long-term growth trend. Our oil price
projections of USD 78.50 for 2010 and USD 82 next
year remain firm.
Within Swedbank’s Total Commodity Price Index,
the price index for food rose by 3.7% in dollar
terms in August compared with the previous month.
The biggest price gain was for grain, at nearly 25%
in two months. In SEK, that figure was lower
(14.5%) due to the krona’s appreciation against the
dollar. Unfavourable weather conditions were the
main reason for the increase in food prices. After
this summer's wildfires, Russian wheat production
is expected to shrink by a third in 2010.
The risk of a new global food crisis is lower than in
2008. A fragile global economy and well-filled
inventories reduce the risk of any major price
increases. The export embargo of Russian wheat
has contributed to greater uncertainty about food
supplies, however. This was also the case with the

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 Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued

No. 8 • 17 September 2010

global food crisis in 2007-2008, which probably Gold and Silver in USD, Index 2000=100
500
accelerated the price increases. To ensure future 2000=100
450
food supplies, the easing of trading restrictions on 400
foodstuffs will be extremely important. 350

300

Index
Economic worries are driving up the price 250

200
of gold 150

100
Gold is increasingly considered a safe alternative
50
among financial investors. Several Asian central 00 01 02 03 04 05 06 07 08 09 10

banks have also begun buy up gold to a great Gold Silver

Source: Reuters EcoWin

extent, partly in order to diversify their currency
reserves. The price of gold has repeatedly broken
new records in recent years. Higher gold demand is
also driving up the prices of silver, probably to a
lesser extent because industrial use of silver has
increased. So far this year gold has risen by nearly
9% to USD 1 260 per ounce, while metal prices
have fallen by 2%. Since the beginning of the
2000’s the price of gold has increased nearly five
times over, faster than many of the world’s stock
markets. Silver has also traded substantially higher
during the same period after having mainly
accelerated in the last two years.
The continued rise in the price of gold indicates that
the global economic recovery rests on shaky
ground and that economic imbalances still remain.
In addition to weaker growth signals in the US,
there is great uncertainty about the fiscal situation
in several European countries. During the summer
and fall credit spreads in Greece, Ireland and Spain
have risen to the levels of last spring. Against the
backdrop of the underlying imbalances in the global
economy and the risk of a double-dip recession, we
feel it is likely that the price of gold could continue
to rise in the short term. In a more long-term
perspective, changing economic conditions could
lead to a relatively fast shift to investments other
than gold. Higher interest rates and a visible rise in
the dollar would likely reduce interest in gold as a
financial investment.

Jörgen Kennemar

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 Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued

No. 8 • 17 September 2010

Swedbank Commodity Index - US$ - Swedbank Commodity Index - SKr -

Basis 2000 = 1oo 16-09-10 Basis 2000 = 1oo 16-09-10
6.2010 7.2010 8.2010 6.2010 7.2010 8.2010
Total index 259,9 264,8 270,0 Total index 221,5 213,3 213,9
Per cent change month ago -1,3 1,9 1,9 Per cent change month ago 0,6 -3,7 0,3
Per cent change year ago 14,8 22,3 13,6 Per cent change year ago 16,0 18,0 15,8
Total index exclusive energy 239,2 256,3 265,6 Total index exclusive energy 203,9 206,4 210,4
Per cent change month ago -1,4 7,1 3,6 Per cent change month ago 0,5 1,2 2,0
Per cent change year ago 31,2 38,6 32,5 Per cent change year ago 32,5 33,8 35,1
Food, tropical beverages 212,4 225,8 234,1 Food, tropical beverages 181,0 181,8 185,5
Per cent change month ago 3,9 6,3 3,7 Per cent change month ago 5,9 0,5 2,0
Per cent change year ago -0,7 11,5 10,9 Per cent change year ago 0,3 7,6 13,1
Cereals 174,3 193,4 215,5 Cereals 148,5 155,8 170,8
Per cent change month ago -3,6 11,0 11,4 Per cent change month ago -1,7 4,9 9,6
Per cent change year ago -18,6 3,1 19,3 Per cent change year ago -17,8 -0,5 21,7
Tropical beverages and tobacco 235,1 249,0 253,6 Tropical beverages and tobacco 200,3 200,6 201,0
Per cent change month ago 7,0 5,9 1,8 Per cent change month ago 9,0 0,1 0,2
Per cent change year ago 15,6 21,0 14,5 Per cent change year ago 16,8 16,7 16,7
Coffee 142,2 153,4 157,5 Coffee 121,2 123,6 124,8
Per cent change month ago 10,9 7,9 2,7 Per cent change month ago 13,1 2,0 1,0
Per cent change year ago 20,0 35,9 34,0 Per cent change year ago 21,2 31,1 36,7
Oilseeds and oil 188,2 196,8 204,2 Oilseeds and oil 160,4 158,5 161,8
Per cent change month ago 0,7 4,6 3,8 Per cent change month ago 2,7 -1,2 2,1
Per cent change year ago -20,4 -4,0 -2,1 Per cent change year ago -19,6 -7,4 -0,1
Industrial raw materials 247,0 265,1 274,7 Industrial raw materials 210,5 213,5 217,6
Per cent change month ago -2,6 7,3 3,6 Per cent change month ago -0,7 1,4 1,9
Per cent change year ago 42,5 47,5 39,1 Per cent change year ago 44,0 42,3 41,8
Agricultural raw materials 163,4 166,8 170,7 Agricultural raw materials 139,2 134,3 135,3
Per cent change month ago -0,3 2,1 2,3 Per cent change month ago 1,6 -3,5 0,7
Per cent change year ago 40,0 36,1 29,8 Per cent change year ago 41,5 31,3 32,4
Cotton 81,4 79,0 86,6 Cotton 69,4 63,6 68,6
Per cent change month ago 0,0 -2,9 9,6 Per cent change month ago 2,0 -8,3 7,8
Per cent change year ago 51,0 33,4 47,8 Per cent change year ago 52,6 28,8 50,7
Softwood 144,1 149,1 150,0 Softwood 122,8 120,1 118,9
Per cent change month ago -0,6 3,5 0,6 Per cent change month ago 1,3 -2,2 -1,0
Per cent change year ago 28,8 27,7 21,7 Per cent change year ago 30,1 23,2 24,0
Woodpulp 969,4 978,6 976,6 Woodpulp 826,1 788,2 773,8
Per cent change month ago 2,5 0,9 -0,2 Per cent change month ago 4,5 -4,6 -1,8
Per cent change year ago 59,3 53,4 46,3 Per cent change year ago 60,9 48,0 49,2
Non-ferrous metals 207,7 214,8 232,5 Non-ferrous metals 177,0 173,0 184,2
Per cent change month ago -6,6 3,4 8,2 Per cent change month ago -4,8 -2,3 6,5
Per cent change year ago 24,3 23,6 14,1 Per cent change year ago 25,6 19,2 16,4
Copper 6498,7 6734,6 7283,2 Copper 5538,0 5424,3 5771,1
Per cent change month ago -5,3 3,6 8,1
Per cent change month ago -3,5 -2,1 6,4
Per cent change year ago 29,6 29,1 17,8
Per cent change year ago 30,9 24,6 20,2
Aluminium 1931,0 1987,8 2112,1
Aluminium 1645,5 1601,0 1673,6
Per cent change month ago -5,6 2,9 6,3
Per cent change month ago -3,7 -2,7 4,5
Per cent change year ago 22,2 19,2 9,4
Per cent change year ago 23,4 15,0 11,5
Lead 1703,4 1836,4 2071,8
Lead 1451,6 1479,1 1641,7
Per cent change month ago -10,0 7,8 12,8
Per cent change month ago -8,3 1,9 11,0
Per cent change year ago 1,7 9,4 8,5
Per cent change year ago 2,7 5,6 10,6
Zinc 1742,5 1843,4 2042,6
Zinc 1484,9 1484,7 1618,5
Per cent change month ago -11,9 5,8 10,8
Per cent change month ago -10,2 0,0 9,0
Per cent change year ago 11,9 16,8 12,2
Per cent change year ago 13,1 12,7 14,4
Nickel 19382,7 19512,8 21370,0
Nickel 16517,4 15716,3 16933,4
Per cent change month ago -12,5 0,7 9,5
Per cent change month ago -10,8 -4,9 7,7
Per cent change year ago 29,3 22,1 8,8
Per cent change year ago 30,7 17,8 11,0
Iron ore, steel scrap 571,5 658,0 659,3
Iron ore, steel scrap 487,0 530,0 522,4
Per cent change month ago 0,1 15,1 0,2
Per cent change month ago 2,1 8,8 -1,4
Per cent change year ago 70,4 92,1 89,3
Per cent change year ago 72,2 85,4 93,0
Energy raw materials 269,0 268,6 271,9
Per cent change month ago -1,2 -0,2 1,2 Energy raw materials 229,2 216,3 215,5
Per cent change year ago 9,4 16,4 7,0 Per cent change month ago 0,7 -5,6 -0,4
Coking coal 372,2 362,5 341,9 Per cent change year ago 10,6 12,3 9,1
Per cent change month ago -1,4 -2,6 -5,7 Coking coal 317,2 292,0 270,9
Per cent change year ago 40,1 31,3 26,0 Per cent change month ago 0,5 -7,9 -7,2
Crude oil 264,3 264,3 268,7 Per cent change year ago 41,5 26,7 28,4
Per cent change month ago -1,2 0,0 1,7 Crude oil 225,2 212,9 212,9
Per cent change year ago 7,9 15,6 6,0 Per cent change month ago 0,7 -5,5 0,0
Per cent change year ago 9,0 11,6 8,1
Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg
Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg

Swedbank
Economic Research Department Swedbank’s monthly Energy & Commodities newsletter is published as a service to our
customers. We believe that we have used reliable sources and methods in the preparation
SE-105 34 Stockholm, Sweden of the analyses reported in this publication. However, we cannot guarantee the accuracy or
Phone +46-8-5859 7740 completeness of the report and cannot be held responsible for any error or omission in the
ek.sekr@swedbank.se underlying material or its use. Readers are encouraged to base any (investment) decisions
www.swedbank.se on other material as well. Neither Swedbank nor its employees may be held responsible for
Legally responsible publisher losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’s
Cecilia Hermansson, +46-88-5859 7720 monthly Energy & Commodities newsletter.
Magnus Alvesson, +46-8-5859 3341
Jörgen Kennemar, +46-8-5859 7730

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