Energy & Commodities, No. 5 - May 11, 2012: Lower commodity prices as the economic recovery loses speed

1. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department
by Jörgen Kennemar No. 5 • 11 May 2012
Lower commodity prices as the economic recovery
loses speed
 Swedbank’s Total Commodity Price Index fell broadly between March and
April. In total, the index lost 3.3% in USD after having risen since the
beginning of the year. Excluding energy commodities, the price decline was
limited to 1.3%, but prices are nearly 18% lower than a year earlier, which
has meant lower commodity costs for manufacturers.
 Non-ferrous metals accounted for the biggest price decline in April, led by
aluminum, followed by nickel and copper. To date, however, price declines of
around 20% from last year have not led to higher global demand for industrial
metals. With the exception of copper, metal inventories have risen, which
indicates that the demand is slowing.
 Increased oil production both within and outside OPEC and a lower risk
premium on crude since nuclear talks with Iran were restarted have led to a
significant decline in oil prices. This is also having a positive effect on the
global economy. Geopolitical uncertainty in the Middle East still remains,
however, at the same time that oil consumption in emerging economies
continues to rise at a rapid rate, which suggests continued high oil prices
going forward.
Swedbank’s Total Commodity Price Index, USD
During the spring there have been several signs not least in the EMU countries, where the
that the global economic recovery has lost speed, purchasing managers index has fallen in recent
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. 5 • 11 May 2012
months. In the US, industrial activity continues to For copper inventories, the opposite has been true.
strengthen, while the labor and housing markets Based on data from the London Metall Exchange
remain weak. Falling bond yields may also indicate (LME), inventories outside China have reached their
an uncertain economic outlook. Investor interest in lowest level in over three years, not least due to
government bonds is growing at the expense of declining production in South America, which
commodity-related investments. accounts for one third of global copper extraction.
The cyclical commodity markets fell broadly in April. Despite tight supply conditions, prices have been
For the first time since December Swedbank’s Total pushed lower. This is probably more the result of an
Commodity Price Index declined. Between March expectation of lower Chinese demand due to high
and April the index lost 3.3% in both USD and SEK. copper inventories held by Chinese companies. At
The biggest price drop was for industrial metals, the same time the Chinese housing market is
which fell by 4.3% on average, which means that gradually slowing, due to which imports of copper
the price index for non-ferrous metals is about 20% are expected to be weaker in the months ahead.
lower in USD year-on-year. Of the metal From a fundamental perspective, however, we feel
commodities, aluminum and nickel posted the that copper has a greater price upside than
biggest price declines at 6.2% and 4.4%, aluminum, zinc and nickel. In addition to tight
respectively, measured in USD. The price decline supplies, copper consumption per capita in
for copper was limited to 2.3%, followed by zinc (- emerging economies is low compared with mature
1.8%). Lead prices held their ground, with price industrial countries.
levels remaining largely unchanged compared with
the previous month. Price trend for non-ferrous metals 2011-2012, USD
The market for basic metals is being affected at the
same time by growing inventories, an indication that
global demand is slowing. The biggest inventory
increases have been for zinc and nickel, which is
probably the result of a slower increase in steel
production. The slowdown is from record levels,
however, with global steel production having
passed 1,527 million tons last year, about half of
which China accounted for. This year the increase
in global steel production is expected to slow to just
over 3.5%, compared with 5.6% last year,
especially as China’s expansion slows.
Metal inventories, millions of tons
Iron ore and scrap prices are trending slightly higher
after a substantial decline during the second half of
2011. Since the beginning of the year the price of
iron ore has risen by 4-5% in USD, though it
remains nearly 14% lower than the same period last
year, when prices reached record-high levels (just
over USD 180 dollar a ton). In SEK, the price is
between 5-7% lower than last year's levels. We
expect that weaker growth in global steel
production, especially in China, will reduce demand
for iron ore products in 2012 and affect prices. At
the same time per capita steel consumption has
reached the same level in China as in several
Western European countries. In 2010 per capita
consumption was 427 kg in China, exceeding the
EU average of 327 kg. Of course, it is natural that
steel consumption is higher during a build-up stage
2 (5)

3. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 5 • 11 May 2012
before eventually slowing when purchasing power Japan, which have taken measures to reduce or
and service production increase. In countries such stop oil imports from Iran. The painful economic
as India and Indonesia, with a combined population sanctions that are scheduled to take effect on July 1
of around 1.5 billion, steel consumption is could be eased, however, if the political talks make
significantly lower (under 60 kg per capita), i.e., progress.
there is major long-term growth potential here if the A major increase in oil production in Saudi Arabia
slowdown in Chinese demand proves long-lasting. and other oil producers during the first quarter has
led to higher supplies. Among producers, Saudi
Steel production (% change) and share of global Arabia still has the largest production potential.
production by country Since the beginning of the year its crude production
Share (%) 2011 2012 2013 has risen by 6% to 11 million barrels a day, the
EU-27 11,1 5,4 -1,2 3,3 highest level in over 30 years. Expectations of
NAFTA 8,8 9,1 5,2 5,1 further production increases from Saudi Arabia
CIS 3,9 12,1 4,1 5,1 have received support from official statements that
China 55,1 6,2 4,0 4,0 the current price level could hurt the global
World 5,6 3,6 4,5 economic recovery. This policy is opposed by
Source: Worldsteel several other OPEC countries, however, which
means that tension within the organization could
increase. The OPEC summit in June could be a test
Oil prices reverse course
of how unified the cartel really is.
The index for energy commodities, which includes Growing oil inventories in OECD countries suggest
crude and coal, fell by 4.3% in April in USD after that the balance between supply and demand has
having steadily risen since late last year. At the time improved since last winter. Inventories are rising in
of writing the price of Brent crude was fluctuating the US, among other places. Weaker growth
around USD 112 a barrel after having peaked at numbers from emerging economies, which account
USD 130 in early March. This could also have a for most of the increase in global consumption, are
positive effect on the global economy, although the keeping the price of oil in check. A bigger slowdown
risk of higher oil prices still remains. in China could have major implications for prices.
Due to continued geopolitical uncertainty in the
Crude oil prices and Global PMI Middle East and strong oil imports from emerging
economies, we are maintaining our average oil
price forecast of USD 119 a barrel in 2012, which is
also the average price so far this year. This means
that the prices should trend higher than today's level
in the second half of 2012 as global growth
gradually strengthens. On the other hand, another
fiscal crisis in the EMU and significantly weaker
growth in China could push the price lower from
today's levels.
Lower food prices, but from high levels
The price decline for food commodities is
continuing, although the correction is from last
year's high levels. In April Swedbank’s commodity
price index for foods fell by 1.4% compared with
March, which means that it is 18% lower year-on-
year. Tropical beverages and tobacco have had the
weakest trends this year. For oilseeds, including
soybeans, prices have risen by no less than 26% on
What is the cause of the major price drop? The risk average since the start of 2012. Increased global
premium on crude, which had risen substantially at demand, especially from China, and supply
the start of 2011, has fallen in recent weeks ahead shortages have driven up prices to the highest
of the upcoming nuclear talks with Iran. This has levels since early 2011. The price index for grain,
probably also reduced the risk that Iran will act on which reached record highs during the first half of
its threats to close the Strait of Hormuz, where 20- 2011, is not yet showing any signs of turning higher
30% of global oil shipments pass. At the same time and remains lower than a year ago. There are
Iran is under pressure from the EU, the US and variations between different types of grain,
3 (5)

4. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 5 • 11 May 2012
however, with barley having risen by 7-8%, while Fluctuating food prices in recent years indicate that
wheat prices have fallen by 5% in USD. changes in supply or demand can have a major
impact on prices. A growing population, increasing
Price trend for food commodities purchasing power and changing eating habits are
also increasing the need for efficient agricultural
production. Our forecast of a recovery in food prices
remains firm, although the trend during the first four
months of 2012 has been slightly weaker than
expected.
Among agricultural commodities, pulp has seen the
biggest price improvement. In April it rose by 1.5%
to USD 850 a ton after having reached USD 829 in
early 2012. The price trend for cotton has been
exceptional. Between the third quarter of 2010 and
the first quarter of 2011 it more than doubled, from
USD 80 a pound to USD 200, due to global supply
shortages. Increased supplies over the course of
2011 quickly sent prices lower, however, back to
the levels of over two years ago.
Jörgen Kennemar
4 (5)

5. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 5 • 11 May 2012
Swedbank Commodity Index - US$ - Swedbank Commodity Index - SKr -
Basis 2000 = 1oo 14/ 05/ 12 Basis 2000 = 1oo 14/ 05/ 12
2.2012 3.2012 4.2012 2.2012 3.2012 4.2012
T otal index 385.4 397.9 384.8 T otal index 279.0 290.6 282.3
Per cent change month ago 4.5 3.2 -3.3 Per cent change month ago 1.6 4.2 -2.9
Per cent change year ago 12.9 8.7 -1.1 Per cent change year ago 17.0 15.2 7.7
T otal index exclusive energy 276.9 276.5 273.0 T otal index exclusive energy 200.4 202.0 200.3
Per cent change month ago 2.0 -0.1 -1.3 Per cent change month ago -0.9 0.8 -0.8
Per cent change year ago -13.2 -12.3 -17.6 Per cent change year ago -10.1 -7.1 -10.3
Food, tropical beverages 266.1 261.5 257.7 Food, tropical beverages 192.6 191.0 189.1
Per cent change month ago 0.5 -1.7 -1.4 Per cent change month ago -2.3 -0.8 -1.0
Per cent change year ago -16.2 -16.3 -17.9 Per cent change year ago -13.2 -11.2 -10.6
Cereals 277.6 280.1 272.3 Cereals 201.0 204.6 199.8
Per cent change month ago 0.8 0.9 -2.8 Per cent change month ago -2.0 1.8 -2.4
Per cent change year ago -11.7 -7.8 -16.2 Per cent change year ago -8.6 -2.3 -8.8
T ropical beverages and tobacco 274.2 260.1 248.3 T ropical beverages and tobacco 198.5 190.0 182.2
Per cent change month ago -1.0 -5.1 -4.5 Per cent change month ago -3.8 -4.3 -4.1
Per cent change year ago -18.8 -22.8 -25.6 Per cent change year ago -15.9 -18.2 -19.0
Coffee 182.1 167.6 160.4 Coffee 131.8 122.4 117.7
Per cent change month ago -3.5 -8.0 -4.3 Per cent change month ago -6.2 -7.1 -3.9
Per cent change year ago -15.7 -25.3 -30.4 Per cent change year ago -12.6 -20.8 -24.3
Oilseeds and oil 241.0 252.3 268.6 Oilseeds and oil 174.5 184.3 197.1
Per cent change month ago 4.2 4.7 6.5 Per cent change month ago 1.3 5.6 6.9
Per cent change year ago -12.7 -4.5 2.1 Per cent change year ago -9.6 1.3 11.1
Industrial raw materials 280.0 280.9 277.4 Industrial raw materials 202.7 205.2 203.5
Per cent change month ago 2.4 0.3 -1.2 Per cent change month ago -0.5 1.2 -0.8
Per cent change year ago -12.3 -11.2 -17.6 Per cent change year ago -9.2 -5.9 -10.3
Agricultural raw materials 171.6 173.7 174.6 Agricultural raw materials 124.2 126.9 128.1
Per cent change month ago 2.9 1.2 0.5 Per cent change month ago 0.0 2.1 1.0
Per cent change year ago -17.1 -14.4 -16.9 Per cent change year ago -14.1 -9.3 -9.5
Cotton 92.0 89.8 90.4 Cotton 66.6 65.6 66.3
Per cent change month ago -4.5 -2.4 0.7 Per cent change month ago -7.1 -1.5 1.2
Per cent change year ago -50.5 -55.3 -53.2 Per cent change year ago -48.7 -52.6 -49.0
Softwood 131.4 133.4 135.6 Softwood 95.1 97.4 99.5
Per cent change month ago 1.3 1.5 1.6 Per cent change month ago -1.5 2.4 2.1
Per cent change year ago -9.1 -9.1 -10.6 Per cent change year ago -5.9 -3.7 -2.7
W oodpulp 829.0 837.0 849.6 W oodpulp 600.1 611.4 623.3
Per cent change month ago -0.3 1.0 1.5 Per cent change month ago -3.1 1.9 2.0
Per cent change year ago -12.7 -13.2 -14.4 Per cent change year ago -9.5 -8.0 -6.8
Non-ferrous metals 253.6 249.9 239.2 Non-ferrous metals 183.6 182.5 175.5
Per cent change month ago 4.1 -1.5 -4.3 Per cent change month ago 1.2 -0.6 -3.9
Per cent change year ago -15.6 -15.7 -20.8 Per cent change year ago -12.5 -10.6 -13.8
Copper 8415.2 8456.6 8258.8 Copper 6091.9 6177.0 6059.4
Per cent change month ago 4.9 0.5 -2.3 Per cent change month ago 2.0 1.4 -1.9
Per cent change year ago -14.7 -11.3 -12.9 Per cent change year ago -11.7 -5.9 -5.1
Aluminium 2202.8 2182.6 2046.7 Aluminium 1594.6 1594.2 1501.7
Per cent change month ago 3.1 -0.9 -6.2 Per cent change month ago 0.3 0.0 -5.8
Per cent change year ago -12.2 -14.5 -23.1 Per cent change year ago -9.0 -9.4 -16.3
Lead 2124.9 2061.0 2062.4 Lead 1538.2 1505.4 1513.2
Per cent change month ago 1.7 -3.0 0.1 Per cent change month ago -1.1 -2.1 0.5
Per cent change year ago -17.8 -21.4 -24.4 Per cent change year ago -14.9 -16.7 -17.7
Z inc 2056.4 2034.2 1997.0 Z inc 1488.7 1485.9 1465.2
Per cent change month ago 4.2 -1.1 -1.8 Per cent change month ago 1.3 -0.2 -1.4
Per cent change year ago -16.6 -13.4 -15.5 Per cent change year ago -13.6 -8.2 -8.0
Nickel 20446.1 18705.6 17877.8 Nickel 14801.2 13663.2 13116.9
Per cent change month ago 3.5 -8.5 -4.4 Per cent change month ago 0.7 -7.7 -4.0
Per cent change year ago -27.6 -30.2 -32.1 Per cent change year ago -25.0 -26.0 -26.1
Iron ore, steel scrap 631.5 642.1 647.7 Iron ore, steel scrap 457.2 469.0 475.2
Per cent change month ago 0.2 1.7 0.9 Per cent change month ago -2.6 2.6 1.3
Per cent change year ago -4.3 -3.1 -14.5 Per cent change year ago -0.9 2.7 -6.9
Energy raw materials 433.6 451.7 434.3 Energy raw materials 313.9 330.0 318.7
Per cent change month ago 5.3 4.2 -3.8 Per cent change month ago 2.4 5.1 -3.4
Per cent change year ago 23.4 16.2 4.8 Per cent change year ago 27.9 23.2 14.1
Coking coal 437.8 406.5 393.8 Coking coal 316.9 296.9 288.9
Per cent change month ago -0.2 -7.1 -3.1 Per cent change month ago -2.9 -6.3 -2.7
Per cent change year ago -8.7 -15.1 -16.5 Per cent change year ago -5.4 -10.0 -9.1
Crude oil 433.4 453.8 436.2 Crude oil 313.7 331.5 320.0
Per cent change month ago 5.6 4.7 -3.9 Per cent change month ago 2.6 5.7 -3.4
Per cent change year ago 25.5 18.0 5.9 Per cent change year ago 30.0 25.1 15.3
Source : SW EDBAN K and HW W A-Institute for Economic Research Hamburg Source : SW EDBAN K and HW W A-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
5 (5)