Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition Wet Boots in August, Bust the Bins in October - Crude oil reversed some of July’s selloff, recovering from $40/bbl. - Grains weakness offset energy strength, expecting record corn and soybean harvests - Industrial metals retraced some of July’s gains, led by continued weakness in copper - Precious metals declined on increased Federal Reserve tightening expectations and profit taking - In a historic anomaly, precious metals futures curves remained in steep contango Mike McGlone – BI Senior Analyst; Commodities Just too Much Grain Supply Coming Performance: August -1.8%, YTD +5.6% (returns are total return (TR) unless noted) The Bloomberg Commodity Index (BCOM) gave up earlier-in-the-month gains in the last week of August, declining 1.8% on the month, led by sharp declines in corn, soybeans and wheat. A recovery in energy prices was insufficient to offset declines in the other major sectors. Both wheat and corn ended August near decade lows. Grain traders were “bettin on the come” as farmers say, referring to the potential for a large crop. A notable take-away from a member of the annual Pro-Farmer crop tour, was his boots were getting wet, in reference to ample soil moisture, thus boosting North American grain harvest estimates in corn and beans to new records. Energy was the holdout for the month as WTI crude oil held $40 a barrel support, ending the month in the middle of the $40/bbl. to $50bbl. range. Futures curves continuing to shift towards backwardation and elevated short interest indicated rebalancing markets in the midst of oversupply. Stock and Commodity Market Total Returns Profit taking and increased Federal Reserve tightening expectations were primary pressure factors on gold and silver after reaching two-year highs. New record highs in the stock market alleviated the need for safe havens as bond yields also picked up. Fed member rhetoric remained consistent; hawkish when the stock market goes up, dovish when it goes down. Industrial metal green shoots showing in 2016, but not in copper. Among the industrial metals, copper remained the dud. Oversupply in China continued to be cited as a primary copper pressure factor. The Bloomberg Copper Index is the only member of the Bloomberg Industrial Metals to end August with a YTD decline, -3.7%. Asset Class Performance - August Macro Focus - September may Provide Clarity. For most of August, the US dollar remained under pressure, supporting the BCOM, but hawkish Fed reserve comments increased prospects for tightening, thus supporting the dollar. The Bloomberg US Dollar Index gain of 0.6% was the first monthly advance since May. The index ended the month at the same level as March, indicating consolidation. US bond market yields have also consolidated most of the months of July and August in a historically narrow range - about 1.46% to 1.64% in the US 10 year note. The US dollar and bond yields are ripe for some movement. If bond yields resume the 2016 trend lower, it may be a negative coincident indicator for commodities. A potential signal to the Federal Reserve to resume tightening could entail rising stock prices, bond yields and commodities. Notably missing Market Commentary 1 Energy 2 Metals 4 Ags & Livestock 9 Performance 12 Attribution & Weights 13 Volatility 17 Correlation 20 Commitment of Traders 25 Inventories & Sales 29 Term Structures 31 Research Dashboards 33 Cheat Sheet 34 1
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Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
Wet Boots in August, Bust the Bins in October
- Crude oil reversed some of July’s selloff, recovering from $40/bbl.
- Grains weakness offset energy strength, expecting record corn and soybean harvests
- Industrial metals retraced some of July’s gains, led by continued weakness in copper
- Precious metals declined on increased Federal Reserve tightening expectations and profit taking
- In a historic anomaly, precious metals futures curves remained in steep contango
Mike McGlone – BI Senior Analyst; Commodities
Just too Much Grain Supply Coming Performance: August -1.8%, YTD +5.6% (returns are total return (TR) unless noted)
The Bloomberg Commodity Index (BCOM) gave up earlier-in-the-month gains in the last week of August, declining 1.8% on the month, led by sharp declines in corn, soybeans and wheat. A recovery in energy prices was insufficient to offset declines in the other major sectors. Both wheat and corn ended August near decade lows. Grain traders were “bettin on the come” as farmers say, referring to the potential for a large crop. A notable take-away from a member of the annual Pro-Farmer crop tour, was his boots were getting wet, in reference to ample soil moisture, thus boosting North American grain harvest estimates in corn and beans to new records.
Energy was the holdout for the month as WTI crude oil held $40 a barrel support, ending the month in the middle of the $40/bbl. to $50bbl. range. Futures curves continuing to shift towards backwardation and elevated short interest indicated rebalancing markets in the midst of oversupply.
Stock and Commodity Market Total Returns
Profit taking and increased Federal Reserve tightening expectations were primary pressure factors on gold and silver after reaching two-year highs. New record highs in the stock market alleviated the need for safe havens as bond yields also picked up. Fed member rhetoric remained consistent; hawkish when the stock market goes up, dovish when it goes down.
Industrial metal green shoots showing in 2016, but not in copper. Among the industrial metals, copper remained the dud. Oversupply in China continued to be cited as a primary copper pressure factor. The Bloomberg Copper Index is the only member of the Bloomberg Industrial Metals to end August with a YTD decline, -3.7%.
Asset Class Performance - August
Macro Focus - September may Provide Clarity. For most of August, the US dollar remained under pressure, supporting the BCOM, but hawkish Fed reserve comments increased prospects for tightening, thus supporting the dollar. The Bloomberg US Dollar Index gain of 0.6% was the first monthly advance since May. The index ended the month at the same level as March, indicating consolidation. US bond market yields have also consolidated most of the months of July and August in a historically narrow range - about 1.46% to 1.64% in the US 10 year note. The US dollar and bond yields are ripe for some movement. If bond yields resume the 2016 trend lower, it may be a negative coincident indicator for commodities. A potential signal to the Federal Reserve to resume tightening could entail rising stock prices, bond yields and commodities. Notably missing
Market Commentary 1 Energy 2 Metals 4 Ags & Livestock 9 Performance 12 Attribution & Weights 13 Volatility 17 Correlation 20 Commitment of Traders 25 Inventories & Sales 29 Term Structures 31 Research Dashboards 33 Cheat Sheet 34
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
in 2016 has been declining bond yields. The BCOM spot index has recovered 13% and the S&P 500 is up 7.8%. Both indicate economic improvement. Indicating the opposite, plunging bond yields are evident on the previous table; the Bloomberg Barclays U.S. Treasury 20+ TR Index is the best performer, YTD, on a one-year and on a two-year basis. The BCOM has been the worst performer over the past one and two year periods, until 2016. September may bring some clarity to this recent divergence.
Sector Performance – Energy the only Positive Sector in August
BCOM Performance Attribution. Energy was the only sector to contribute to BCOM total returns in August, accounting for +1.1%. Agriculture was the primary drag on total returns, subtracting 1.4%. Base metals and precious metals subtracted an average of 0.7% each {PORT <GO>}.
On an YTD basis, precious metals remained the largest contributor to total returns, adding 2.5%. Energy accounted for 1.9%, agriculture 0.9% and base metals, 0.6% of total BCOM index returns. Livestock subtracted 0.5%. Gold, with the highest single commodity weight in the BCOM (10.4% average in 2016) was the most significant single commodity contributor to returns, adding 1.4% to the total.
BCOM Sector Attribution August – {PORT <GO>}
Note, PORT data for the BCOM is a rough approximation
BCOM Sector Attribution YTD – {PORT <GO>}
Note, PORT data for the BCOM is a rough approximation
Energy (Index weight: 28.7% of BCOM.
Performance: August +3.6%, YTD +0.9%) *Note index weights are the YTD average
WTI Recovers From $40 Support, Futures Indicate Rebalancing Every BCOM energy commodity increased in August, led by the 11.7% gain in heating oil. The Bloomberg Energy Index added 3.6%, moving back into the black for the year with a 0.9% increase. WTI crude oil began the month near $40 a barrel and recovered to $44.7/bbl., about the middle of the $40/bbl. to $50/bbl. range. Brent crude managed two daily closes above $50/bbl. in August, but some profit taking prevailed by the month’s end. Crude oil is consolidating and adjusting to lower levels following the substantial declines of the past two years. Global demand is responding rapidly to the lower price levels as the latest nuances from OPEC hinted at curtailed production, helping prices to bottom in August.
BCOM Individual Energy Commodity Changes
Crude Oil: Range Trading with Increasing Shorts WTI crude oil is stuck in a range, but on Aug. 11, aggregate open interest (OI) reached the highest level since September 2013 -- when the market approached $110 a barrel. That month marked the highest open interest for WTI ever and $110 a barrel in front WTI has not traded since. The recent OI spike came despite summer doldrums. Some net short indicators reached records. Increasing open interest in a down market is an
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
indication of new shorts. In a churning market, extended one-way positions near either end of the range can often drive mean reversion.
Crude Oil Managed-Money Shorts Reached a New Record in August
Excessive short positions made it difficult for WTI crude oil to extend below $40 a barrel in August. Net long or short positions have a tendency to follow the market price, but the chart indicates a bit of divergence in August, when managed-money net shorts continued to stretch to new record highs as crude oil recovered from $40 support.
Prices Down, Open Interest Up = New Shorts
Spiking Open Interest Can Mark Price Extremes, Bottom Potential. A longer-term bottom may be forming in crude oil, given technical market indicators such as the potential bottoming head and shoulders chart pattern, extended open interest levels and recent record short positions.
Crude Oil-U.S. Dollar Relationship on Watch as Summer Wanes. The U.S. dollar is likely to be a key macro driver for crude oil in 2H. At the end of August, the
front price of WTI crude recovered 21% in 2016 as the Bloomberg U.S. Dollar Index (BBDXY) declined 3.6%. The mean reverting dollar is helping to support crude oil prices, after the rallying dollar over the past two years pressured crude. The Bloomberg Dollar index has increased about 15% over the past two years and WTI has declined about 53%, suggesting a crude oil-to-BBDXY ratio near -3.3, when crude was on the way down and the dollar up.
The US Dollar and Crude Oil (inverse)
The U.S. dollar's pattern on the chart appears to be "coiling-up" to move. At the end of August, the Bloomberg Dollar Index was at similar levels as in March, indicating the range trade. But the chart depicts a market teetering near trend-line support.
Brent Crude - Leading the Drive from Contango. The flattening futures curve indicates shifting positive supply and demand conditions. Despite a spot price decline of 13% in the front Brent crude oil price over the past year, the Brent futures curve has flattened, i.e. front futures have declined less than the further outs. A year ago, the one-year Brent futures curve closed near a 22% contango. At the end of August 2016, the same curve measure had flattened to near 11%. The futures curve appears to be looking ahead of a market currently focused on excess supply. "The spreads are the language of the market," according to an old saying among futures traders. The 11% YTD shift away from contango in Brent was the third sharpest among all the BCOM commodities, surpassed only by the energy commodities: heating oil and natural gas (table on following page).
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
The Brent Futures Curve has Recovered from Steep Contango
The chart above depicts a potential divergence in the spot Brent crude price downtrend and shifting futures curve. During the majority of the sharp Brent price decline beginning in 2014, in a similar pattern, the futures curve shifted more steeply into contango. More recently, as the front end has consolidated lower prices, the futures curve has shifted more rapidly away from contango, indicating shifting positive supply/demand conditions. One-Year Futures Curves - Energy Commodities Lead the Move Away from Contango in 2016
Measured on a percentage basis of the spread between the first futures contract minus the one-year out, divided by the first.
The opposite of contango is backwardation, when further out futures trade at lower prices. The shape of the curve moving towards backwardation (or away from contango) is normally due to supply/demand conditions bidding the front part of the futures curve.
Energy Commodities Led August Gainers
U.S. Crude Oil Inventories May Build as Supply Glut Protracts. Benchmark WTI prices may be pressured by an atypical build in U.S. oil inventories expected in the week ended Aug. 26, intensifying the supply overhang. With summer travel season ending, U.S. refinery utilization may slow further as weakening product demand pressures refinery runs. Domestic crude production fell nearly 1.1 million barrels a day since its 2H15 peak, though strong oil imports have helped offset volume declines. At 524 million barrels, total inventories hover 38% above the five-year norm. U.S. Crude Oil
Inventories May Build as Supply Glut Protracts. Vincent G Piazza - BI Senior Industry Analyst. Daniel Krauser - BI Associate. {NSN OCQH116JIJUO <GO>} Brent Price Premium to Domestic WTI Crude Oil Widens. Brent crude oil benchmarks continue to strengthen relative to domestic WTI with the premium, or spread, widening recently. U.S. benchmarks have been suppressed, driven by still-elevated inventories across the domestic petroleum value chain. There's also been commentary from U.S. E&P managements suggesting a return of oil volume. A sustained widening of differentials between the key benchmarks may further promote exports of U.S. crude, which have risen most recently since restrictions were removed in December. The premium between Brent and WTI price benchmarks has widened to more than $2 a barrel from $1.50. In February, the differential was $2.80. Brent Price Premium to
Domestic WTI Crude Oil Widens. Vincent G Piazza - BI Senior Industry Analyst. {NSN OCJ01Y6JTSER <GO>} U.S. East Coast Faces More Expensive Winter as Heating Oil Rises. U.S. consumers in the East, who benefited last year from low heating oil prices, may not get a similar assist this winter. With U.S. distillates correlated to oil, domestic diesel and heating oil prices have recovered this year as crude rebounded. Mild U.S. winter and softer broader demand left distillate storage 12% above the five-year average, with inventories in the East Coast, home to a large share of heating-oil stocks,
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
even higher. Exports may help further narrow imbalances and support prices this season. U.S. East Coast Faces More
Expensive Winter as Heating Oil Rises. Vincent G Piazza - BI Senior Industry Analyst. Poonam Goyal – BI Senior Industry Analyst. {NSN OCGTYF6JIJV5 <GO>} A Richer India Won't Replace a Slower China in Global Oil Demand. India's oil-demand growth can surpass China's this year as its larger neighbor's economy slows and restructures, but its absolute demand remains far behind. Within fuels, India's rising diesel demand seems poised to offset a Chinese decline, supporting spreads better than for gasoline, where Indian consumption isn't likely to catch up. India also faces the challenge of rising exposure to imported oil, which may increase to 87% by 2020 while China's dependence may stabilize at 65%. A Richer India Won't Replace a Slower China in
Global Oil Demand. Kunal Agrawal - BI Senior Industry Analyst. Lu Wang – BI Industry Analyst. {NSN OBPOV86TTDSR <GO>} Hurricane Season May Have Smaller Effect on U.S. Oil, Gas Output. Atlantic cyclones could have a reduced effect on Gulf of Mexico oil and natural gas output, based on EIA data. U.S. onshore production has risen dramatically in recent years due to developments in unconventional drilling, reducing the effect of storm-related outages as the Gulf's share of oil output fell to 18% from its 32% peak in 2009. Though onshore oil supply could also be affected by weather, the relative smaller size of wells means the potential price impact would be much less. Hurricane Season May Have Smaller Effect
on U.S. Oil, Gas Output. Vincent G Piazza - BI Senior Industry Analyst. Daniel Krauser - BI Associate. {NSN OCRO1D6JTSEC <GO>}
Metals
Industrial (Index weight: 14.5% of BCOM.
Performance: August -4.1%, YTD +7.4%)
Precious (Index weight: 14.5% of BCOM.
Performance: August -4.9%, YTD +26%)
Precious Metals – Pressured by Fed
Fears and Profit Taking Increased prospects of Federal Reserve tightening prompted gold and silver profit taking from two year highs. The Bloomberg Precious Metals Index declined 4.9% in August, lessening the 2016 gain to 26%. Led by profit taking, as evidenced by a sharp decline in silver open interest, the Bloomberg Silver Index declined 8.6% in August as spot silver closed below $19 an ounce for the first time since late June. Gold continued to back
away from the two year high close on July 8 at $1,366 an ounce, ending the month at $1,310/oz. Hawkish comments from Fed officials, coincident with record stock prices, prompted fed funds futures to boost the expected rate in one year to 69 bps at the end of August, compared to 53 bps in July. Silver Open Interest Declines from Record Highs
Silver Open Interest Plunges in August, Indicating Profit Taking. Silver futures open interest on the COMEX declined 15% in August for the sharpest monthly open interest decline in a year and greatest percentage decline among all the BCOM commodities. In notional dollar value, COMEX silver open interest declined 22% ($5 billion) to $17.7B for the greatest US dollar value monthly decline since April 2013. Spot silver declined 14% in April 2013. Profit taking was clearly at hand in safe havens like gold and silver in August as stocks reached new records, bond yields picked up, the US dollar recovered and Fed tightening came back on the radar, potentially as soon as the September meeting. Bloomberg Intelligence Economics Analysis expects one Fed hike in 2016 of 25bps at the December meeting. Negative yields in much of the world’s debt markets remain an underlying support factor for gold and silver, which appear to have put in bottoms in 2016 following sharp multi-year corrections.
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
Gold has Shifted Steeper into Contango
Steep Gold and Silver Contangos are an Anomaly. History has shown that the anomaly of steepening contango shaped gold and silver futures curves is unsustainable, absent a corresponding increase in base interest rates. Classified as currencies, base rate expectations are the primary factor in the shape of gold and silver futures curves. The one-year out gold future closed at a high premium (contango) of 1.8% in August to the front price; the steepest contango since October 2008. In October 2008, Fed funds were 1.0% compared to 0.4% at the end of August and 12-month LIBOR was 3.1% compared with 1.6% at this months end. Gold and silver futures curves have moved steeper into contango along with increasing LIBOR rates. New regulations for prime money markets have boosted LIBOR, but the futures curves appear to have moved in excess of historic norms. Futures curves may have jumped the gun, or rates may play catch-up. Gold Near Historic High Discount to U.S. M2 Valuation. Gold is almost as cheap as ever compared with its valuation, based on U.S. money supply divided by all gold mined. The current differential of $855 an ounce is close to the record set in December of $1,045. U.S. money supply is set to double in 10 years, and China's will do the same in seven. Such extreme money printing vs. a growth in gold, which may not double in amount mined for at least 35 years, means that the value of paper money vs. the metal will continue to grow rapidly on a compounding basis. Gold is a currency that is held by almost all central banks. Russia and China have aggressively added to their gold reserves and new blockchain technologies are making the metal a relevant alternative to paper currencies. Gold Near Historic High
Discount to U.S. M2 Valuation. Kenneth W Hoffman – BI Senior Industry Analyst, Sean Gilmartin – BI Associate. {NSN OC9AK76K50XS <GO>}
Gold Nears Record Gap vs. M2 Valuation
ETF Flows Show Retail Investors Still Like Gold as Traders Bail. When it comes to gold, traders are selling and retail investors are buying. That's what ETF flows show, with $1 billion leaving the SPDR Gold Shares (GLD) in the past three weeks -- a 2.5% decline in assets. The iShares Gold Trust (IAU) has added about $200 million in cash, a 2% gain, and hasn't had a day of outflows since early June. The SPDR fund is used more as a short-term trading tool due to its high volume. The iShares ETF mostly attracts long-term allocations since it's cheaper, with a fee of 0.25% vs. 0.4%.ETF Flows Show
Retail Investors Still Like Gold as Traders Bail. Eric Balchunas - BI Industry Analyst. Mike McGlone - BI Commodities Strategist. {NSN OCPVX76K50YD <GO>} Silver Takes Home the Gold With 41% Return Thanks to Dual Usage. The iShares Silver Trust (SLV) is up 41% (as of August 16) thanks to its dual role as a safe haven asset and an industrial metal. It is often considered leveraged gold, but with over 50% of its demand for industrial purposes. The 70% correction from the 2011 highs helped to shift silver supply and demand conditions favorably. At the end of 2015, silver was essentially priced for a worst case global economic scenario. SLV, which physically stores the silver in a vault, has taken in $632 million this year.Silver Takes Home the Gold With 41%
Return Thanks to Dual Usage. Eric Balchunas - BI Industry Analyst. Mike McGlone - BI Commodities Strategist. {NSN OC02D06KLVRJ <GO>}
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
Industrial Metals – Pressured by Weak
Copper and Profit Taking Industrial metals reversed July’s gains in August as measured by the 4.1% monthly decline in the Bloomberg Industrial Metals Index. Despite the August pull-back, the Bloomberg Industrial Metals Index remained the second-best-performing major BCOM sector in 2016 with an YTD gain of 7.4%, surpassed by the 26% gain in the Bloomberg Precious Metals Index. Increasing industrial metal prices should be considered a primary indication of green shoots developing in the global economy. Open interest declined in all the BCOM industrial metals in August, indicating long liquidation, led by the 3.8% OI decline in Aluminum. Over-supplied copper, notably in China, remained the primary drag on the industrial metals. The Bloomberg Copper Index shifted to a YTD loss of 3.7% on the back of the 7.9% decline in August. Due to its global significance and high liquidity, copper has the highest weight among the industrial metals, averaging 6.2% of the BCOM in 2016. Aluminum is the closest runner up at 3.9%. The Bloomberg Aluminum Index declined 2.3% in August lessening the YTD gain to 4.9%. The anti-corrosion metals, nickel and zinc, remained the 2016 performance studs. Zinc was the only industrial metal to gain in August as measured by the 3.0% gain in the Bloomberg Zinc Index. It was just tacking on some more gains. Year-to-date, in August the Bloomberg Zinc index surpassed silver to be the best performing BCOM commodity with a gain of 42.2%. Zinc Open Interest has Reached Record Highs
Zinc may be Vulnerable. Zinc open interest declined slightly from the August peak, but it remains near record highs with the price near $2,400-$2,500 per ton. This price area has held zinc resistance since 2008. Sustaining zinc above $2,500/mt. would be an indication
of improving global economic recovery. China is the world’s largest producer and consumer of zinc. It appears, from the previous chart, that zinc future positions are positioned for further price increases. The Gold/Copper Ratio is at the 2009 Extreme
Relative to gold, copper is at the extreme disparity peak from 2009. The ratio of the BCOM Industrial Metals Index divided by the BCOM Precious Metals Index extended a new history of BCOM lows (since 1991) in August (chart above with the ratio in inverse). Gold is the quintessential store of value metal, copper is known as the doctor of global economics. Zinc Passed Silver to take the YTD gold in August
CRR <GO>
China's Zinc Demand for Infrastructure Drives Global Growth. China's refined zinc demand, 47% of the world's refined zinc consumption in 2015, rose 7.8% during the first five months of this year. The increase was driven by galvanized steel output, infrastructure expansion and the metal's use in auto parts. That trend may extend into 2016, supporting global refined-zinc demand. Refined-zinc demand could reach 14.3 million tons this year, with production at 13.3 million, leaving a 350,000-ton deficit, according to the International Lead and Zinc Study
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
Group. China's Zinc Demand for Infrastructure Drives Global
Growth. Kenneth W Hoffman - BI Senior Industry Analyst, Zhuo Zhang - BI Associate {NSN OAVDMG6KLVR7 <GO>} Copper May Follow if Yuan Devalues to New Lows Following G-20. Further depreciation of the yuan vs. the U.S. dollar after the September G-20 meetings in China could put more pressure on copper prices as interest-rate carry trades become less profitable - and add to supply while reducing overall demand. In addition to less Chinese demand, the industry is adding significant new supply, further disrupting market balance. The yuan has been slowly depreciating toward January lows and copper is declining in tandem. Copper is the worst-performing base metal in 2016, down a little over 2% year-to-date. Copper May Follow if Yuan Devalues to New Lows Following G-20. Kenneth W Hoffman - BI Senior Industry Analyst, Zhuo Zhang - BI Associate, Sean Gilmartin, Contributing Analysts {NSN OCQCMT6K50YA <GO>}
Relationship Exists Between Yuan and Copper
China's Alumina Imports Drop This Year as Aluminum Output Slides. China's alumina imports in the first seven months of 2016 fell 19.5% from a year earlier to 1.9 million tons, coinciding with a 1.9% decline in the nation's aluminum output. Australia remained the top supplier of the raw material for aluminum production, providing 63% of China's inbound shipments. July imports jumped 37% from the prior month to 219,934 tons, mainly due to an increase in shipments from India. Domestic alumina output dropped 0.6% this year through July. Australia supplied 62% of China's alumina in 2015, followed by India with 15% and Vietnam at 10%. Brazil accounted for 7% of China's alumina imports last year. China's Alumina Imports Drop This Year as Aluminum Output Slides. Manshu Deng - BI Associate, Yi Zhu - BI Senior Industry Analyst {NSN OCO4NH6JIJUW <GO>}
China Aluminum Demand May Grow 7% in 2016, Even Amid Slowdown. China's aluminum demand may rise 7% in 2016, even as the economy slows from the pace of the past several years, according to Rusal's May forecast.
The main driver could be the transportation industry, which has accounted for 35% of this year's 2.16 million-ton increase in Chinese demand. Bloomberg Intelligence conducts periodic channel checks with smelters, refineries and customers to track new supply, capacity cuts, inventories and demand. China Aluminum Demand May Grow 7% in 2016, Even Amid Slowdown. Yi Zhu - BI Senior, Industry Analyst {NSN OC4RSU6K50YQ <GO>}
Global Nickel Market's Price Recovery Signals Possible Bottom. The nickel market may have bottomed in 1Q. Prices recovered to an average of $8,862 a ton in 2Q, up from the previous quarter's $8,545, the lowest since 2003. While nickel was still down 32% from a year earlier, current prices are close to 20% above the 2Q average and the market is in deficit for the first time since 2011. Globally, low prices have finally led to mine closings and production cuts. Shutdowns in the Philippines have raised questions about the availability of nickel ore. Global Nickel Market's Price Recovery Signals
Possible Bottom. Kenneth W Hoffman - BI Senior Industry Analyst, Zhuo Zhang - BI Associate. {NSN OAX9966JIJUR <GO>}
Global Mined Nickel Supply Declines
Global Nickel Production Reacts to Plunging Prices With Decline. Global mined nickel supply shrank 9.3% this year through May, after prices plunged 42% in 2015. A 42.5% slump in Philippines mine output led the decline. The country has become the leading supplier to China, filling the gap left by Indonesia's export ban. Output could decline further after the Philippines suspended five mines to enforce environmental standards. Norilsk, the world's largest nickel producer, projects its 2016 output will fall about 21,000 tons to 206,000-212,000 tons. Global Nickel
Production Reacts to Plunging Prices With Decline. Kenneth W Hoffman - BI Senior Industry Analyst, Zhuo Zhang - BI Associate. {NSN OAX97S6K50Y7 <GO>}
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
Agriculture (Index weight: 26.5% of BCOM.
Performance: August -4.8%, YTD +0.0) Grains (Index Weight: 19.9% of BCOM. Performance:
August -7.7%, YTD -10.8%) Softs (Weight: 6.6% of BCOM. Performance: August
+0.0%, YTD +18.4%)
Grains- Wet Boots in August, Busting
Bins in October Favorable weather and improving growing techniques increased prospects for 2016 to be the fourth successive year of record North American production in corn, soybeans or both. Overwhelming supply prospects pressured the Bloomberg Grain Index to add to the 9.9% decline in July with an additional 7.7% loss in August. The grains as a group make up about 20% of the entire BCOM. Supported by recovering crude oil prices, soybean oil was the only member of the grain index that did not decline in August. USDA crop estimates released in August set a high bar for 2016 growing season. Corn is on pace for 15 billion bushels and soybeans are on pace for 4 billion bushels. The previous records were 14.2 billion bushels of corn in 2014 and 3.9 billion bushels of soybeans in 2015. Farmers getting their boots wet. The annual Pro Farmers tour in August was notable for “wet boots,” as one of participant described a result from touring this year’s fields. Every year, the Pro Farmers tour conducts an extensive ‘boots-on-the-ground’ analysis of US crops to determine their condition and estimate production. The 2016 tour was notable for good, moist soil conditions and thus, increased production estimates - and wet boots. The Corn Price Nears a Decade Low
Futures Curves Favor Storing Corn and Selling Soybeans. The front corn future has not sustained below $3 a bushel since October 2006. September 2016 corn, the front futures contract, ended August at $3.02/bu. September 2017 corn, one-year out, ended the month at $3.49/bu. for a steep contango of 15%. For producers, storing corn and selling further-out futures offers a relatively attractive return. The end of August corn contango was the steepest for this time of year since 2005 (chart below). Steep futures curves are providing incentive to keep supply off the spot market, as much as farmers have storage capacity or can afford to purchase it. Soybeans in Backwardation, Corn in Contango
Beans are the opposite. The one-year-out soybean curve ended August about 3% in backwardation, offering higher prices in the spot market. If producers have a propensity to store corn and sell beans, bean prices should be under greater pressure. Investor returns are enhanced in backwardation. Although spot prices for soybeans are elevated relative to corn, rolling long-investment positions into backwardation can offer an additional pickup from a positive roll yield. Historically, investors have had better total returns in soybeans than corn. Wheat Has Been Feeding the Grain Bears, May Shift to the Bulls. Wheat has been the weakest component among the grains over the past few years, but it has reached the lowest price in a decade and has become relatively cheap to corn -- which means it's being widely substituted for livestock feed. A low wheat-to-corn ratio has often been a support indicator for wheat. At the end of August, the world's most widely traded wheat future (soft red winter, SRW, on the Chicago Mercantile Exchange) hit the lowest price since 2006. The wheat-to-corn ratio fell to the lowest since 2013.
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
Wheat - Decade lows and Record Shorts
Favorable weather, bumper harvests and a global supply glut have pressured wheat prices. Looking ahead, low prices can be a primary factor in reducing grain supply. Producers have little incentive at current prices. Some signs of market rebalancing suggest a bottom soon. Wheat futures open interest in early August jumped to the highest level since February 2013, indicating new shorts. Sharply lower 2016 production estimates in France, the largest producer in the EU, should contribute to reducing global ending stocks. Record Wheat Shorts Make Play for Lower Prices at Key Support. Wheat net-managed short positions have reached new records as the commodity revisits the 2002 through 2006 range of about $3 a bushel to $4. Prior to 2016, soft red winter wheat net non-commercial futures positions rarely exceeded negative 60,000. In 2016, as the wheat price has dropped to the lowest levels since 2006, net positions have reached a new extreme, exceeding negative 100,000 contracts. Positions leaning heavily to the short side of the wheat market may provide some support in the near term. Longer term, producers have the least incentive in a decade to grow their stocks, and wheat is being substituted for corn for feed -- all indicating increasing demand.
BCOM Individual Commodities Open Interest - Sorted by August change
Softs – Sugar Remains the Dominant
Performer Softs continued to consolidate 2016 gains, posting the second consecutive unchanged month as measured by the Bloomberg Softs Index. Year-to-date, the index has gained 18.4%, which is about the same as at the end of June. The sharp 32% YTD increase in the spot price of sugar has been the softs leading gainer and third among all BCOM commodities, just behind silver (36%) and zinc (44%). Sugar Futures Indicate a Healthy Rally. Sugar had the second largest percent increase in open interest among the BCOM commodities in August, rising 8% (see open interest table on following page). In addition, the sugar one-year futures curve is second only to live cattle on the list of BCOM commodities in backwardation. Sugar futures have seen the sharpest curve shift among all the BCOM commodities on a year-over-year basis (table on page 3) into backwardation. At the end of August 2015, the sugar one-year future traded at a 14% premium (contango) to the front future, compared to a 4% discount (backwardation) at the end of August 2016. The contango condition in sugar a year ago is evident in the end of August gross sugar roll yield at -16% (table below). If the curve remains in backwardation, the Bloomberg Sugar Index should expect an improvement in the roll yield. Sugar remains the primary driver of softs returns in 2016 on the back of the 30% YTD gain in the Bloomberg Sugar Index. Sugar is the most significant softs commodity with the highest weight in the sector (3.5% BCOM weight average in 2016). Sugar continued to consolidate some of the high velocity gains since recovering from the 8-year low near $10/lb. reached in
Bloomberg Commodity Index (BCOM) Tables & Charts – August 2016 Edition
2015. Front sugar futures ended August at $20/lb. The sharp rise in sugar prices appeared to echo that of many commodities that have been rebalancing to more neutral supply/demand conditions in the aftermath of significant price declines. Fundamentally, unfavorable growing conditions in Brazil (the world’s largest sugar producer) and India (the world’s second-largest producer and largest importer) have supported sugar prices in 2016. BCOM Individual Commodities Annualized Roll Yields
Measured on a gross roll yield basis; the 251 business day difference between the total return and spot change.
Livestock (Index weight: 4.5% of BCOM.
Performance: August -0.1%, YTD -10.0%)
The Only Sector with a Positive Roll Yield – Rolling into Backwardation The Bloomberg Livestock Index declined 0.1% in August for a YTD decline of 10.0%. Both the live cattle and lean hogs front futures declined on the month, dropping 5.7% and 8.9% respectively, but despite the front futures price decline, the Bloomberg Lean Hogs Index gained 6.5% in August. The index did not roll in August and was invested in the October futures, which was in steep backwardation to the front August contract at the end of July. The October lean hogs future, which was the front contract at the end of August, gained 6.4% in August. Livestock prices have been declining on oversupply issues the past few years, but the backwardation conditions in the futures indicates price supportive forces are at play. A positive roll yield in livestock may be a bit deceiving as it is one of the most expensive sectors to store. Since the year 2000, the average gross BCOM Livestock Index roll yield has been negative 6.8%. Looking ahead, the live cattle futures curve is indicating the tightening supply/demand conditions. Live cattle ended August with the steepest level of backwardation among all the BCOM commodities at 6% in the one-year
out futures compared to the first. Historically since 1999, the one-year measure of the live cattle futures curve has averaged -1%, BCOM Sector Annualized Roll Yields
Bloomberg US Treasury Bond Index BUSY 3.83% 4.28% 3.97% 3.89% 3.96%Bloomberg USD IG Corporate Bond Index BUSC 4.17% 3.94% 3.73% 3.92% 4.13%Bloomberg USD HY Corporate Bond Index BUHY 1.99% 3.82% 4.83% 3.58% 3.41%
Bloomberg U.S. Dollar Spot Index BBDXY 5.99% 7.84% 6.85% 6.25% 6.38% 7.14%
BloombergCommodity Index TRS&P 500 Total ReturnIndexBloomberg USTreasury Bond IndexBloomberg USCorporate Bond IndexBloomberg USD HYCorporate Bond IndexBloomberg U.S. DollarSpot Index
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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
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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 Index Methodology
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
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