Energy & Commodities, No.9 - December 2, 2011;

1. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department
by Jörgen Kennemar No. 9 • 2 December 2011
Commodity prices fall as the global economy slows
 A bleak outlook for global growth and the fiscal crisis are keeping pressure on
commodity prices, especially metals, but also foods. Since peaking last spring,
Swedbank’s Total Commodity Price Index excluding energy commodities has fallen by
19% in USD. Crude oil prices, in contrast, remain high despite deteriorating growth,
which is weighing on an already fragile global economy.
 Major fluctuations in food prices in 2011 are an indication of their price sensitivity if
faced by supply disruptions or changes in the financial markets. It also complicates
production and investment plans for food producers.
Swedbank’s Commodity Price Index in USD
In late fall indications pointed to significantly slower countries has dropped below a reading of 50, and
global growth in OECD countries in the quarters confidence among households and businesses has
ahead. In a report from November 2011, the OECD fallen to the lowest levels since 2009. Emerging
(51% of the global economy, adjusted for economies led by China are also affected by
purchasing power parity) predicted growth of 1.6% weaker growth in the West, at the same time that
next year, compared with 2.8% in its spring austerity measures are clearly impacting their
forecast. The purchasing managers index in several growth at home. (This is especially true of the
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.

2. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 9 • 2 December 2011
housing market, but also the steel industry). A Price trend for various commodities in 2011, % change
global slowdown coincident with political
disagreement on how to manage the fiscal crisis in
the US and Europe is creating increased
uncertainty in the financial markets and reducing
the risk appetite for commodities. In November
Swedbank’s Total Commodity Price Index excluding
energy commodities fell by 4% compared with
October. As a result, the index has dropped by
nearly 20% since peaking in April. On the other
hand, the price of crude, which weighs heavily in
the index, rose by slightly over 5%, because of
which the Total Commodity Price Index was up 3%
between October and November.
Metal prices, which continue to decline in pace with The price of copper, which reached just over USD 9
weaker global industrial activity, posted the biggest 500 per ton last summer, has at the time of writing
decline in Swedbank’s index in recent months. retreated to about USD 7 500, despite that
Since last spring, when industrial metals reached inventories have fallen to the lowest levels since
their highest levels in over two years, prices have January. Among industrial metals, copper faces the
fallen by just over 20% in USD, with nickel and zinc tightest supply conditions. Chilean copper
accounting for the biggest decreases. This is a production, which accounts for a third of the global
larger decline than we forecast in Swedbank’s total, has fallen due to strikes and unfavourable
economic outlook last fall. It means that the average weather conditions. For fundamental reasons, there
price level for non-ferrous metals has risen by 15% is a limit therefore how far the price of copper can
year over year, which is lower than the 20% fall.
increase we predicted in our August forecast.
The prices of iron ore and steel trended lower in the
A bleak growth outlook, primarily in the EMU but third quarter due to global weakness and downward
also in several emerging economies, points to revisions of investment plans. The spot price of iron
ore, which fell by 30 per cent in September and
slackening demand for industrial metals and, as a
result, a further price drop. We think metal prices October from a year earlier, has risen by 25 per
could fall by an average of 5-6% in USD in 2012 cent since the start of November, which shows that
there is still an interest in strategically building
given an unchanged price level over the year, which
was the price decline we predicted last fall. commodity inventories as soon as the market falls
However, with growth prospects having further too much (although the absence of Indian steel on
the market may have greatly contributed to the
deteriorated, metals could fall even more, by just
over 10% on average in 2012. This could be offset increase). Forecasts of lower steel production
by an increased inventory build-up, not least in around the world should keep demand for iron ore
in check, however, and thus prices as well. In 2012
China, which accounts for slightly over 40% of
global metal consumption. The Chinese central global steel production is expected to rise by 5.4%
bank’s decision on November 30 to reduce capital in volume, compared with 6.5% this year, after
having grown by 15% in 2010. The steel industry is
adequacy requirements for banks indicates its
growing concerns about future economic also faced with overcapacity, especially in China,
development. In the short term this could lead to where production capacity has been slashed this
year partly due to austerity measures the
higher demand for metals, especially after the
recent price drop, which is pushing metal prices government has introduced. In the EU, which
accounts for a tenth of the global total, steel
higher. Limited access to metals is another factor
keeping the price decline in check. This is production is expected to grow by a modest 2.5%
particularly true of copper and iron ore, but also rare with the risk that it could be lower.
earth metals.
Oil prices remain stuck at high levels
The price of crude (Brent) has not yet shown signs
of declining despite the global slowdown. Instead,
prices have fluctuated within a broad range
between USD 104-120 per barrel. This means that
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3. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 9 • 2 December 2011
the average crude price for 2011 is around USD earlier this year. This applies to everything from
113 per barrel, in line with our forecast earlier in the grain and sugar to cooking oil and means that the
fall. Oil futures indicate that prices will stay above food index in Swedbank’s Commodity Price Index is
the USD 100 level in 2012, higher than the US 98 at its lowest since November of last year, though it
we forecast this fall. It isn’t growth in global is still high from a long-term perspective. Since
consumption that has kept oil prices high. In fact, 2000 the index has nearly tripled in USD and
forecasts for this year and next have been gradually doubled in euro. Growing concerns about the global
revised lower. The International Energy Agency economy, higher food production and rising
(IEA) estimates that consumption will rise by 89.5 inventories are contributing to the price correction in
million barrels a day this year and 90.5 million 2011. Though declining, average food prices will be
barrels in 2012, a downward revision from its over 30% higher than last year, which is due to the
forecast last summer. Instead, the problem is on the record-high prices earlier in 2011. This is in line with
supply side, including geopolitical developments in our prediction last fall. The high volatility in food
the Middle East and their impact on future oil prices is an indication of their sensitivity in the event
supplies. There have not yet been any signs that of supply disruptions or changes in the financial
OPEC will raise production at its summit later this markets. It also complicates production and
month. At the same time there has been investment plans for food producers. A rapidly
disagreement within the organisation whether to growing population and rising purchasing power in
raise production quotas, as evidenced at its summit highly populated regions will require higher, and
in June, when the discussion centred on replacing more efficient, food production as well as lower
Libyan production. That issue has been resolved, trading restrictions on agricultural products.
and production from Libya is rising again from a low
level. The supply of oil is also limited because Gold prices in USD
production in countries outside OPEC such as
Brazil and the UK is growing significantly slower
than expected.
An extended period of high oil prices could weigh
on an already fragile global economy, even though
consumption in the West is lower than during the oil
crises 25-30 years ago. Debt-burdened economies
are the most vulnerable to high oil prices. In EU
countries, the cost of oil imports is expected to
increase from 280 billion euro in 2010 to slightly
over 400 billion euro in 2011.
Price trend for various food commodities
The price trend for gold is more uncertain
Gold is among the commodities that have risen the
most in price in 2011, climbing by 20% since the
start of the year, in contrast with a corresponding
decline for non-ferrous metals. Growing concerns
about the strength of the global recovery and the
risk that a fiscal crisis in EMU countries could
trigger another financial crisis and adversely affect
the real economy have contributed to increased
demand for gold as an investment alternative from
both financial investors and central banks. In the
late fall the volatility in gold prices increased, with
Food prices fall as production rises prices ranging between USD 1 600 – 1 800 per troy
ounce after having nearly reached USD 1 900 per
The major increase in food prices in the second half troy ounce in the summer months. This is an
of 2010 and start of 2011 has been followed by a indication that gold is not a totally safe financial
drop of about 15% in USD compared with the peak investment. In addition, financial conditions have
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4. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 9 • 2 December 2011
changed during the fall months, which has reduced remain in place in 2012 when fiscal policies are
investor interest in gold. The increased need for tightened.
liquidity has led to a gold sell-off, at the same time
that more capital is needed up front to invest in gold
contracts. When the dollar rises, it tends to push
gold prices lower. Indications are that the price of
gold will remain high, however, until the imbalances
in the global economy are alleviated. At the same
time expansive monetary policies are expected to
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5. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 9 • 2 December 2011
Swedbank Commodity Index - US$ - Swedbank Commodity Index - SKr -
Basis 2000 = 1oo 05-12-11 Basis 2000 = 1oo 05-12-11
8.2011 9.2011 10.2011 8.2011 9.2011 10.2011
T otal index 346.9 368.0 356.1 T otal index 241.3 265.6 257.4
Per cent change month ago -5.1 6.1 -3.2 Per cent change month ago -4.8 10.1 -3.1
Per cent change year ago 28.5 34.7 23.5 Per cent change year ago 12.8 26.9 23.2
T otal index exclusive energy 316.7 308.4 282.5 T otal index exclusive energy 220.3 222.6 204.2
Per cent change month ago -1.1 -2.6 -8.4 Per cent change month ago -0.8 1.0 -8.3
Per cent change year ago 19.2 12.6 1.1 Per cent change year ago 4.7 6.1 0.8
Food, tropical beverages 303.1 298.3 275.0 Food, tropical beverages 210.9 215.3 198.8
Per cent change month ago 0.8 -1.6 -7.8 Per cent change month ago 1.1 2.1 -7.7
Per cent change year ago 29.5 21.3 7.1 Per cent change year ago 13.7 14.3 6.8
Cereals 309.3 306.1 281.8 Cereals 215.2 220.9 203.7
Per cent change month ago 7.2 -1.0 -7.9 Per cent change month ago 7.5 2.7 -7.8
Per cent change year ago 43.5 27.5 11.6 Per cent change year ago 26.0 20.1 11.3
T ropical beverages and tobacco 322.2 317.4 293.8 T ropical beverages and tobacco 224.1 229.1 212.4
Per cent change month ago -0.5 -1.5 -7.4 Per cent change month ago -0.2 2.2 -7.3
Per cent change year ago 27.1 20.0 8.5 Per cent change year ago 11.5 13.1 8.1
Coffee 211.4 212.2 193.3 Coffee 147.1 153.2 139.7
Per cent change month ago 0.8 0.4 -8.9 Per cent change month ago 1.1 4.1 -8.8
Per cent change year ago 34.2 29.7 19.6 Per cent change year ago 17.8 22.2 19.3
Oilseeds and oil 257.7 251.9 229.8 Oilseeds and oil 179.3 181.8 166.1
Per cent change month ago -0.3 -2.3 -8.8 Per cent change month ago 0.0 1.4 -8.6
Per cent change year ago 26.2 20.1 0.5 Per cent change year ago 10.8 13.1 0.2
Industrial raw materials 320.6 311.3 284.6 Industrial raw materials 223.0 224.7 205.7
Per cent change month ago -1.7 -2.9 -8.6 Per cent change month ago -1.3 0.8 -8.4
Per cent change year ago 16.7 10.5 -0.5 Per cent change year ago 2.5 4.0 -0.8
Agricultural raw materials 201.8 195.6 186.9 Agricultural raw materials 140.4 141.2 135.1
Per cent change month ago -0.5 -3.1 -4.4 Per cent change month ago -0.2 0.6 -4.3
Per cent change year ago 18.2 11.8 0.6 Per cent change year ago 3.8 5.3 0.3
Cotton 103.6 105.3 101.2 Cotton 72.1 76.0 73.2
Per cent change month ago -3.4 1.6 -3.9 Per cent change month ago -3.1 5.5 -3.7
Per cent change year ago 19.6 8.8 -10.0 Per cent change year ago 5.0 2.5 -10.3
Softwood 153.8 148.6 144.7 Softwood 107.0 107.3 104.6
Per cent change month ago -0.6 -3.4 -2.6 Per cent change month ago -0.3 0.2 -2.5
Per cent change year ago 2.5 -0.4 -5.7 Per cent change year ago -10.0 -6.2 -6.0
W oodpulp 994.2 967.2 930.3 W oodpulp 691.6 698.1 672.4
Per cent change month ago -2.3 -2.7 -3.8 Per cent change month ago -2.0 0.9 -3.7
Per cent change year ago 1.8 -0.5 -3.7 Per cent change year ago -10.6 -6.3 -4.0
Non-ferrous metals 273.5 257.2 236.7 N on-ferrous metals 190.3 185.6 171.1
Per cent change month ago -5.9 -6.0 -8.0 Per cent change month ago -5.6 -2.4 -7.8
Per cent change year ago 17.6 5.5 -10.2 Per cent change year ago 3.3 -0.7 -10.5
Copper 9043.0 8314.3 7370.9 Copper 6290.8 6000.8 5327.9
Per cent change month ago -6.0 -8.1 -11.3 Per cent change month ago -5.7 -4.6 -11.2
Per cent change year ago 24.2 7.9 -11.1 Per cent change year ago 9.0 1.6 -11.4
Aluminium 2389.4 2296.3 2174.5 Aluminium 1662.2 1657.3 1571.8
Per cent change month ago -4.9 -3.9 -5.3 Per cent change month ago -4.6 -0.3 -5.2
Per cent change year ago 13.1 6.2 -7.3 Per cent change year ago -0.7 0.0 -7.6
Lead 2407.0 2297.9 1946.4 Lead 1674.4 1658.5 1406.9
Per cent change month ago -10.3 -4.5 -15.3 Per cent change month ago -10.0 -1.0 -15.2
Per cent change year ago 16.2 5.2 -18.2 Per cent change year ago 2.0 -0.9 -18.4
Z inc 2211.0 2076.4 1859.6 Z inc 1538.1 1498.6 1344.2
Per cent change month ago -7.5 -6.1 -10.4 Per cent change month ago -7.2 -2.6 -10.3
Per cent change year ago 8.2 -3.5 -21.6 Per cent change year ago -5.0 -9.1 -21.8
Nickel 22044.0 20388.5 18919.9 N ickel 15335.0 14715.2 13675.8
Per cent change month ago -7.1 -7.5 -7.2 Per cent change month ago -6.8 -4.0 -7.1
Per cent change year ago 3.2 -9.9 -20.5 Per cent change year ago -9.4 -15.2 -20.7
Iron ore, steel scrap 757.0 759.8 669.4 Iron ore, steel scrap 526.6 548.4 483.9
Per cent change month ago 2.3 0.4 -11.9 Per cent change month ago 2.6 4.1 -11.8
Per cent change year ago 14.8 14.8 10.6 Per cent change year ago 0.8 8.1 10.3
Energy raw materials 360.3 394.5 388.7 Energy raw materials 250.6 284.7 281.0
Per cent change month ago -6.5 9.5 -1.4 Per cent change month ago -6.2 13.6 -1.3
Per cent change year ago 32.5 44.6 33.1 Per cent change year ago 16.3 36.2 32.7
Coking coal 460.9 465.7 448.9 Coking coal 320.6 336.1 324.5
Per cent change month ago 0.2 1.0 -3.6 Per cent change month ago 0.6 4.8 -3.5
Per cent change year ago 34.8 31.3 21.6 Per cent change year ago 18.3 23.6 21.2
Crude oil 355.7 391.2 386.0 Crude oil 247.4 282.3 279.0
Per cent change month ago -6.9 10.0 -1.3 Per cent change month ago -6.6 14.1 -1.2
Per cent change year ago 32.4 45.4 33.7 Per cent change year ago 16.2 36.9 33.3
Source : SW EDBANK and HW W A-Institute for Economic Research Hamburg Source : SW ED BANK and H W W A-Institute for Economic R esearch H amburg
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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