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April 2016Market Commentary 02Commodity Performance BCOM 08 Roll Select 09 Historical 10Contribution to Return & Weights 11Commodity Volatility Realized 12 Implied 13 Historical Realized 14Commodity Correlation Composites 15 Singles 16 US CPI Indices 17 Country CPI 18 Country GDP 19Commitment of Traders Report Monthly Notional Change & Correlation 20 Historical Net Positions 21Commodity Inventories & Sales Monthly Change & Correlation 23 Historical Levels 24Commodity ETP Flows 26Term Structures 27Research Dashboards (BI) 29Bloomberg Cheat Sheet 30
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TABLES & CHARTS(BCOM)BLOOMBERG COMMODITY INDEX
Commodities are roaring back and investors are taking note. Soybeans entered a bull market on bad weather in South America. Silver prices have rallied more than any other metal this year after three straight annual losses. Iron ore jumped above $70 a metric ton and copper is near a one-month high on signs of improving Chinese demand. Vietnam drought boosted coffee prices. Oil is trading near levels not seen in five months as U.S. output dropped to the lowest since October 2014. Put it all together, and the Bloomberg Commodity Index, a measure of returns for 22 commodities, jumped 8.5% in April - the biggest monthly gain since December 2010. After five straight years of losses, commodity markets are rebounding as supply overhangs start to subside. The prospect of the Federal Reserve keeping U.S. interest rates low has lifted demand for raw materials as stores of value. There are signs the backdrop in China is changing as policy makers have talked up growth and added stimulus this year, presiding over a revival in the property market. The Bloomberg Dollar Index (BDXY <go>), which tracks the dollar versus a basket of ten leading global currencies, fell to a 16-month low, bolstering the appeal of commodities. In agriculture, bad weather is fueling concerns of supply problems. Investors in China have poured into commodities markets, pushing futures liquidity to unprecedented levels and drawing comparisons to the credit-driven equity rally that preceded a $5 trillion rout.
April Scorecard for Bloomberg Commodity Indices (Excess Return): CRR <go>
Investors have poured close to $17 billion into exchange-traded products linked to commodities since the start of the year. Total assets under management for commodities have climbed to about $315 billion, the highest since May 2015, according to Citigroup analysts. Traders have also piled in to Chinese commodity markets, sending volumes of everything from steel to coking coal soaring and prompting exchanges to boost margins and fees or issue warnings to investors. Speculators traded $261 billion in Chinese commodities in a single day on April 21st.
Energy (33.1% of BCOM)
The new magic number in the oil industry is $50. BP, rig-owner Nabors Industries and explorer Pioneer Natural Resources all said that prices above $50 a barrel will encourage more drilling or provide the needed boost to cash flow. With oil closing above $45 a barrel in New York for the first time since November after U.S. crude output dropped for a seventh week to the lowest since October 2014, an industry that has been shaving costs to stay competitive is ready for signs of stability at a price level less than half of 2014’s average. At an average price of $53 a barrel of oil the world’s 50 biggest publicly traded companies in the industry can stop bleeding cash, according to industry consultant Wood Mackenzie.
The Energy Information Administration expects global oil markets will “move close to balance” in the second half of the year as lower prices take their toll on production outside OPEC. The world surplus will diminish to 200,000 barrels a day in the last six months of the year from 1.5 million in the first half. Production outside the OPEC Countries will decline by the most since 1992 as the U.S. shale oil boom falters. The glut is also being tempered as Iran restores exports only gradually with financial barriers to sales persisting even after the lifting of international sanctions. However, slowing economic expansion in emerging markets, warmer weather and the removal of fuel subsidies may dampen global oil demand growth. OPEC trimmed estimates for demand growth in 2016 by 50,000 barrels a day because of a slowdown in Latin America, projecting worldwide growth of 1.2 million barrels a day. Weakness in Brazil’s economy, the removal of fuel subsidies in the Middle East and milder winter temperatures in the northern hemisphere could prompt further cutbacks, the group said.
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Gasoline is emerging as the main source of strength for the oil market as consumption is rising, fueled by consumers buying more and bigger vehicles and driving more than ever. According to the IEA, global gasoline use will climb this year by 600,000 barrels a day, accounting for half of the total increase in oil demand. That’s higher than in 2015, when gasoline accounted for 44% of the total. After surging 2.7% in 2015, U.S. gasoline demand is projected to climb 1.4% to 9.29 million barrels a day this year, matching the 2007 peak. American gasoline consumption rose to 9.25 million barrels a day in March, an all-time high for the month, the American Petroleum Institute said. Gasoline consumption in China will grow this year by 218,000 barrels a day, accounting for 65% of total oil demand, and up from 213,000 barrels a day last year, when it accounted for 31% of the total, according to the IEA.
The world’s top oil exporters are burning through their petrodollar assets at an accelerating pace, spending $315 billion of their foreign-exchange reserves - about a fifth of their total - since the oil slump started in November 2014, according to data compiled by Bloomberg. Saudi Arabia accounts for nearly half of the decline in foreign-exchange reserves among oil producers, with $138 billion - or 23% of its total - followed by Russia, Algeria, Libya and Nigeria. In the final three months of last year, Saudi Arabia burned through $38.1 billion, the biggest quarterly reduction in data going back to 1962. Fitch Ratings lowered the credit rating of Saudi Arabia to AA-, following similar steps already taken by Standard & Poor’s and Moody’s Investors Service. Fitch said that Riyadh would face large fiscal deficits this year and a "large share of the government’s financing needs will be funded by disposing of foreign financial assets". The IMF forecast that Saudi Arabia’s current-account shortfall will equal 10.2% of its GDP this year, the most since 1998, when oil prices tumbled to $10 a barrel. Likewise, the United Arab Emirates is facing a balance of payments deficit this year for the first time since reliable statistics start in 1980, according to the IMF.
Five out of eight OPEC nations in the Middle East and North Africa will see their fiscal break-even oil prices fall this year from last, with Saudi Arabia seeing a drop of almost 30%, according to the IEA. Libya is the only country that still requires a price above $100 a barrel as political divisions and the chaos unleashed by Islamic State militants hobble the industry in the nation with Africa’s largest oil reserves. Kuwait requires the lowest price of $52.10 a barrel to balance its budget.
Saudi Arabia made its first sale of oil to a small independent Chinese refiner. What’s significant to markets in this move is that the world’s biggest crude exporter broke from its usual practice of selling via long-term contracts and sold a spot cargo. This could be a sign that spot sales are the only way the Kingdom can gain new market share.
Meanwhile, U.S. oil exporters, back on the world market after a 40-year hiatus, should find steady demand in Europe if they can offer at least a $1.50 discount to benchmark Brent crude, the owner of one of Europe’s largest refineries said.
Natural gas producers have idled drilling equipment at historic rates. There are now 88 gas rigs in the U.S., down from more than 1,600 in 2008. However, producers have become more efficient at using hydraulic fracturing to extract gas from deeply buried rock formations, prolonging a supply glut. Output reached a fifth annual record last year, even as the number of rigs drilling for the fuel dropped to the lowest in data going back to 1987.
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Rigs in Freefall: Gas drilling tumbles as prices decline
Grains (22.5% of BCOM)
It’s been a wild few weeks in the agriculture markets. Floods in Argentina - where parts of the country received six times the normal amount of rain in April - and drought in Brazil have sent futures markets from Chicago to Paris into panic. A 30-day measure of price swings for the Bloomberg Grains Index jumped to the highest since September. That’s a big change from earlier this year, when steadily declining prices for most crops left volatility at the lowest in more than a decade.
Weeks of rain and flooding in Argentina prompted the third-largest soybean exporter’s agriculture ministry and its two biggest exchanges to cut their crop forecasts, citing damage to drenched crops. While there are now forecasts for drier conditions, uncertainty about the extent of the impact means volatile prices won’t go away anytime soon. Dryness is such a problem for the corn harvest in Brazil - second largest exporter - that the government suspended import tariffs for six months, signaling it may have to import the grain. South Africa, the continent’s biggest corn grower, cut its forecast for production of the grain this season for a third time as yields fell in the province that produces the largest amount of the white variety, the Crop Estimates Committee said. The country may reap 7.05 million metric tons of corn this season, which is less than the 9.96 million tons produced in 2015 and smallest harvest since 2006. As conditions deteriorate for South American and South Africa crops, threats are increasing to U.S. growing areas. The shift from El Nino to La Nina weather patterns may come as early as July and would mean higher summer temperatures and drier U.S. conditions, potentially lowering yields for corn and soybeans.
All the weather excitement sent hedge funds and other large speculators running toward agriculture, especially soybeans, where money managers betting on lower prices as recently as March are now the most bullish in almost two years. Trading in corn, soybeans and wheat was more than double the 100-day averages and volume for soybean futures on April 20th reached the highest ever, data compiled by Bloomberg shows.
Although weather still risks damaging crops, this month's rally may have been too much, too fast as global grain inventories at the end of this season will probably be the largest in three decades, the International Grains Council estimates. World wheat inventories are estimated to reach 239.26 million metric tons, the USDA said. U.S. stockpiles this year may rise to 976 million bushels, the highest since 1987, according to the agency. Use in China, the world’s biggest wheat-consuming nation, will fall to 112 million tons as the amount of the grain fed to livestock decreases. That would be the lowest since 2011.
China will reduce the area planted to corn for the first time in more than a decade as the world’s second-biggest producer grapples with a glut. The area will be cut by more than 10 million mu (1.65 million acres) this year, the Ministry of Agriculture said. It will be
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the first decline since 2003-04, according to USDA data. It’s part of a plan to reduce planting by 8.2 million acres by 2020, the ministry said. That’s about 8.7% of the 2015-16 area, USDA data show. China is grappling with a corn glut after the government began subsidizing output in 2008, acquiring grain at above-market prices to protect farm incomes and spurring growers to plant more. The country is also ending its state corn stockpiling program, replacing it with other subsidizes to make it more market based. According to USDA estimates, China's corn stockpiles are forecast at 109.5 million tons at the end of the 2015-16 season, more than double the reserves held in the U.S. and more than half of world inventories.
Industrial Metals (16.5% of BCOM)
Raw materials used in property and manufacturing in China have rallied as a rebound in construction coincided with low inventories after weaker production at the start of the year.
Futures traders in China have flocked to metals, sending aluminum prices to around a 10-month high on the Shanghai Futures Exchange after volume more than quadrupled. That echoes the performance of steel reinforcement bar, where prices rose 20% in four days as trading ballooned. While strong demand and tight supplies in the first quarter drove up aluminum futures, the risk is that aluminum smelters in China - which supply more than half the world’s metal - are restarting idled plants after a price rally, according to the industry group that brokered an agreement in December to curb capacity. As much as half of Chinese smelter capacity is profitable at current prices, the deputy chairman of the China Nonferrous Metals Industry Association said, adding the restarts weren’t a breach of the December accord because the pact allowed for flexibility in production.
Copper stockpiles monitored by the Shanghai Futures Exchange fell from a record, coinciding with a rise in inventories tracked by the London Metal Exchange, a sign flows to China may be reversing. Stockpiles in sheds followed by the LME in Asia rose 8% to 72,675 tons, the most in tonnage terms since January. In March, the average gap between the spot price for copper in China and the cash contract on the LME was the smallest since 2008, a sign that exports from the top user were becoming more attractive. The increase in LME warehouses in Asia is almost certainly the consequence of shipments from China - the world’s biggest copper consumer - which imported 328,604 tons of refined metal in February and exported 10,767 tons.
A quarter of the world’s nickel miners are churning out stainless steel at a loss in the hope that competitors will shut first, according to research firm IHS Inc. The price of nickel slumped 30% in the past year, the worst performance among major metals traded on the LME, as slowing demand helps feed a global glut. Stockpiles on the LME are up fivefold since 2011. IHS estimates that 70% of producers globally are losing money on an operating-cost basis. Of those, 40% are diversified companies that won’t be hurt by the nickel losses, 5% to 10% get government subsidies or some other form of support, while about a quarter of the industry is becoming price-sensitive. With an average price forecast of $8,927 a ton this year and about 90% of production profitable at $15,000, a sudden shutdown in supply is required to rebalance the industry. Many producers are vertically integrated and use their own nickel to make stainless steel. Most loss-making nickel is from companies producing the lower-grade pig iron variety, which requires more energy. Following Indonesia’s 2014 ore-export ban - the world’s biggest producer of mined nickel in 2013 - the Philippines production increased 30% to 410,789 tons, or 20% of global mined production, according to the World Bureau of Metal Statistics.
Precious Metals (16.1% of BCOM)
The first quarter’s best-performing metal has run out of juice. Gold’s barely changed this month, flipping between gains and losses, after surging 16% in the first quarter, the biggest such advance in three decades. Cash flowing into exchange-traded funds backed by the metal has hit the buffers after pouring in at the fastest pace in seven years in the first three months. However, money managers continued to increase their wagers on a price rally to the highest since 2012, taking their optimism to a level last seen before a three-year bear market started. Federal Reserve officials are cautious about raising U.S. interest rates amid persistent risks facing
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the global outlook. Traders have cut the chance of a U.S. interest-rate increase by December down to about 50% compared with 92% at the start of the year. Investors are snapping up bullion as the shaky economy picture spurs haven demand, while low borrowing costs keep the metal competitive against interest-bearing assets. Gold holdings have almost doubled from two months ago, even as the rally stalled since mid-March.
Silver - a metal with a reputation for being gold’s more volatile cousin - is having a run for the record books. Prices have rallied more than any other metal this year after three straight annual losses. Output from silver mines is expected to fall for the first time since 2011, while demand for the metal in uses including industrial products and jewelry is heading for a fourth straight gain, supporting prices, according to CPM Group. Production is declining just as signs of stabilization in China’s economy fuel optimism for stronger global demand, helping drive a 29% rally in the Bloomberg Silver Index this year that topped gold’s performance. Holdings in exchange-traded products backed by silver surged more than 1,132 metric tons this year, almost quadruple the volume for the increase in gold. Assets in exchange-traded products are near a record high. Money managers increased their net-long positions by almost 60% in the last 2 weeks of April to 66,313 contracts, the highest since comparable CFTC data begins in 2006. Aggregate futures trading jumped to 205,423 contracts on April 21, more than triple the average in the past year.
China, the world’s biggest producer and consumer of gold, started a twice-daily price fixing in an attempt to establish a regional benchmark and bolster its influence in the global market. China has overtaken India as the largest consumer as rising incomes and surging economic growth boosted purchases of jewelry, bars and coins. The central bank has also been adding to its bullion holdings in a move to diversify its foreign-exchange reserves. The country’s plans to develop a benchmark to rival the twice-daily London auction may be hampered by capital controls. By establishing a benchmark, China is trying to increase its role in setting global prices and ensure the country’s influence matches its significance as a consumer. It could be a very important development if the new benchmark is a precursor to greater use of gold in the Chinese monetary system and may boost interest in the Shanghai free-trade zone.
Softs (6.8% of BCOM)
China is about to open the floodgates on its huge supplies of cotton, sparking a rout in prices. The country plans to auction about 2 million metric tons from May through August, a government statement showed. That’s almost equal to total shipments expected this season from American growers, the world’s top exporters. The auction sales would represent about 14% of the 13.9-million tons that the USDA estimates that China has in its stockpiles. Nevertheless, the auction sales come as China’s crop is set to shrink this year to the lowest in more than a decade, USDA data show. That’s reducing global output by more than 16%, the biggest annual slide since at least 1961.
The equivalent of 41 million bales of cotton traded in a single day on the Zhengzhou Commodity Exchange in the third week of April, the most in more than five years and enough to make almost 9 billion pairs of jeans.
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Cotton Stockpiles Cotton Traded on Chinese exchange
Coffee growers in Vietnam, the biggest producer of robusta beans, sold beans at the fastest pace in two years to help pay for irrigation amid the worst drought in 30 years due to the impact of El Nino. Coffee exports from Vietnam in the first quarter gained 24% year on year to 457,000 tons, according to data from the General Statistics Office. Crops in Brazil and Colombia are also being affected by the weather pattern. The drought threatening robusta coffee crops in Vietnam is prompting traders to seek protection in the London options market. The two most widely held options give holders the right to buy futures at a price at least 7% higher than now, ICE Futures Europe exchange data show. That suggests some traders expect more gains. Not everyone is bullish, though. The third most-held option gives owners the right to sell beans 5.6% below the current price. Traders may be safeguarding themselves from lower prices because Vietnam is coming out of its dry season, and any rains would improve the crop outlook.
Coffee production in India is set to tumble to a 19-year low as dry weather wilts plantations in Asia’s third-largest grower. Output will decline at least 30% in the harvesting season starting from Oct. 1, compared with a record 350,000 tons a year earlier. That would mean a crop of 245,000 tons, the lowest since 1997-98, according to state-run Coffee Board data. A smaller harvest will cut Indian exports, supporting arabica prices that entered a bull market last month amid concern that global supply will continue to shrink on El Nino-induced crop losses in South America and Southeast Asia.
Investors are losing their taste for sugar. Sugar fell from 17 month high of 16.59 reached in March and money managers are backpedaling on bets prices will rally, cutting their wagers for the first time since February. Favorable weather is accelerating the harvest in Brazil, the world’s biggest producer and exporter. That’s easing concerns over supplies as drought threatens plants in other parts of the world. At the same time, declines in the country’s ethanol price mean that mills have more incentive to turn cane crops into sweetener, rather than into the biofuel. Brazil’s harvesting season kicked off on April 1, and some processors started collecting crops earlier to take advantage of higher domestic sugar prices. The early gathering means that cane processing in the Center-South region, the main growing area, probably more than doubled in the second half of March from a year earlier, according to five estimates from analysts, millers and brokers surveyed by Bloomberg. Crushing in the region probably climbed to 28 million metric tons in the first half of April, according to the mean estimate in a Bloomberg survey of eight analysts, millers and brokers. That’s more than double the 13 million tons processed a year earlier, Unica data showed. The real slumped 15% against the dollar over the past year. Political and financial turmoil has rocked the country, and farmers have been selling as much sugar as they can to take advantage of the currency declines.
Livestock (4.9% of BCOM)
Livestock was the only BCOM group to finish lower in April. Live cattle fell 7.3%, dragging the Bloomberg Livestock Index down 3.5%. Cattle futures rebounded towards the end of the month amid signs of improving U.S. beef demand. Prices capped the biggest gain since February on April 27. Frozen beef inventories on March 31 stood at 467 million pounds, according to USDA data, down 5% from the previous month.
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Composite Indices* Click hyperlinks to open in Bloomberg
2015Apr Mar Q1 Q4 YTD 1-Year 3-Year 5-Year 10-Year 20-Year
Bloomberg US Treasury Bond Index BUSY 3.26% 3.72% 4.24% 3.96% 4.08%Bloomberg USD IG Corporate Bond Index BUSC 2.82% 3.34% 4.18% 4.15% 4.34%Bloomberg USD HY Corporate Bond Index BUHY 2.89% 5.79% 4.69% 3.68% 3.44%
Bloomberg U.S. Dollar Spot Index BBDXY 6.42% 6.77% 6.78% 6.24% 6.41% 7.10%
BloombergCommodity Index TRS&P 500 Total ReturnIndexBloomberg USTreasury Bond IndexBloomberg USCorporate Bond IndexBloomberg USD HYCorporate Bond IndexBloomberg U.S. DollarSpot Index
DWTI US VelocityShares 3x Inverse Crude ETN 238.02 359.79 66.2%SLV US iShares Silver Trust 107.95 5,028.75 2.1%SCO US ProShares UltraShort Bloomberg Crude Oil 89.90 211.11 42.6%IAU US iShares Gold Trust 80.74 7,326.91 1.1%DBA US PowerShares DB Agriculture Fund 66.18 670.36 9.9%FTGC US First Trust Global Tactical Commodity Strategy Fund 50.76 222.96 22.8%GSG US iShares S&P GSCI Commodity Indexed Trust 26.56 748.40 3.5%
DGAZ US VelocityShares 3x Inverse Natural Gas ETN 23.70 58.78 40.3%DBP US PowerShares DB Precious Metals Fund 14.65 154.98 9.5%
SGOL US ETFS Physical Swiss Gold Shares 12.23 955.60 1.3%
All Commodities Sector: Top 10 Redemptions
Ticker Name Net Flows ($ mill)
Beginning Fund Market Cap
($ mill)
% of Funds Market Cap
GLD US SPDR Gold Shares -599.11 32,261.00 -1.9%USO US United States Oil Fund LP -498.97 3,575.78 -14.0%
UWTI US VelocityShares 3x Long Crude ETN -318.22 904.81 -35.2%UCO US ProShares Ultra Bloomberg Crude Oil -83.77 794.11 -10.5%PDBC US Shares DB Optimum Yield Diversified Commodity Strategy Po -31.24 272.16 -11.5%DBO US PowerShares DB Oil Fund -28.95 448.53 -6.5%
UGAZ US VelocityShares 3x Long Natural Gas ETN -12.90 271.64 -4.7%OIL US iPath Goldman Sachs Crude Oil Total Return Index ETN -9.56 703.46 -1.4%GSP US iPath GSCI Total Return Index ETN -9.51 39.35 -24.2%AGQ US ProShares Ultra Silver -9.18 262.13 -3.5%
BLOOMBERG INTELLIGENCE: COMMODITY DASHBOARDS BI <GO> * Click hyperlinks to open in Bloomberg
Crude Oil Production: BI OILS <GO> Natural Gas Production: BI NGAS <GO>
Precious Metal Mining: BI PMET <GO> Agricultural Chemicals: BI AGCH <GO>
Copper: BI COPP <GO> Aluminum: BI ALUM <GO>
BI provides analysis on several key drivers of BCOM performance; industrial and precious metals mining, oil and natural gas production, and agricultural chemicals. The dashboards include key macro data libraries and interactive charting and commentary from analysts with an average of seventeen years of experience.
COMMODITY CHEAT SHEET FOR THE BLOOMBERG PROFESSIONAL® SERVICE
* Click hyperlinks to open in Bloomberg
Broad Commodities EnergyTop commodity news CTOP Top energy news ETOPGlobal commodity prices GLCO Top oil news OTOP Commodity playbook CPLY Crude Oil Production Dashboard BI OILSCommitments of traders report COT First Word oil NI BFWOIL Calendar of commodity events ECO17 News on oil inventories TNI OIL INV Commodity arbitrage calculator CARC Oil Buyer's Guide newsletter NI OBGBRIEFCommodity fundamental data explorer FDM Pipes & Wires newsletter NI PAWSBRIEFCommodity futures overview CMBQ Oil market analysis BOILSecurity finder SECF Nat gas spot prices BGASCommodity data contributors & broker CDAT Forward European utility markets EUMContract table menu CTM News on oil markets NI OILMARKET Seasonality chart SEAG News on OPEC NI OPEC Commodity curve analysis CCRV OPEC production and prices OPECCommodity fair values CFVL Oil markets menu OIL Commodity price forecasts CPFC Crude stored in tankers NOONCommitments of Traders Report COT Refinery outages REFOCommodity maps BMAP Oil’s decline EXT5 Commodity options monitor OMON Oil versus inflation expectations SWIFCommodities charts COSYCommodity Investors menu CMNV MetalsUS exchange traded product fund flows ETF Top metal news METT
Precious metal dashboard BI PMETGBase metals dashboard BI BMET
Commodity Indices Metals prices and data MINE Index description BCOM Index DES Precious metals prices and rates MTL Index constituent weights BCOM Index MEMB Metals Bulletin MB Listed index futures BCOM Index CT COMEX inventories COMX Option volatility surface BCOM Index OVDV LME monitor LME Seasonality chart BCOMNG Index SEAG LME implied volatilities LMIV Commodity index futures movers FMV LME warehouse inventories LMEI Commodity index ranked returns CRR
AgricultureWeather Top agriculture news YTOP Global weather database WETR Agriculture calendar AGRI US snow monitor SNOW Agriculture spot prices AGGPEU weather & utility models EUMM Agriculture supply & demand AGSD
Crop calendar CCAL
BCOM QUICK FACTS
Weighting Bias 2/3 market liquidity and 1/3 world production No. of Commodities 20 Re-balancing Frequency Annual Roll Schedule Monthly (5 day roll) Caps/Limits Single commodity: max 15%
Single commodity and its derivatives: max 25%Related commodity groups: max 33%
First Value Date 30 December 1990
The data provided in this report can be easily accessed on the Bloomberg Professional® service along with numerous news and analytical tools to help you stay on top of the commodity markets.