Energy & Commodities

Monthly newsletter from Swedbank’s Economic Research Department

by Jörgen Kennemar No. 1 • 12 January 2011

Higher energy and food prices lift Swedbank’s Commodity Price Index
• Commodity prices accelerated during the second half of 2010. By December
Swedbank’s Total Commodity Price Index had risen by slightly over 20%
compared with six months earlier. Energy and food posted the biggest gains.
Stronger global demand and tighter supply conditions in several commodity
markets are having a growing impact. In the euro zone, the increase in
commodity prices was even higher due to the weaker euro.
• We expect commodity prices to continue to rise in 2011, though at a weaker
pace, partly because last year’s huge inventory build-up is being reduced and
China’s expansion is slowing. A continuation of the Fed’s and ECB’s
expansive monetary policies will keep liquidity in the financial markets high,
however, which in turn will keep investors interested in commodity-related
investments. At the same time too fast a price increase could threaten the
economic recovery and add to inflation pressures in many countries.
Swedbanks Commodity Price Index, USD

500
2000=100
450

400

350

300
Index

Energy raw materials

250
Total index
200 Total index exclusive energy commodities
150

100 Food

50
00 01 02 03 04 05 06 07 08 09 10
Source: Swedbank

In December 2010 Swedbank’s Total Commodity
Price Index rose by 5.8% in USD compared with
the previous month, further accelerating
commodity prices during the last quarter of the
year. As a result, the Commodity Price Index
reached its highest level in over two years despite
a stronger dollar, contrary to the historic and
negative connection between the dollar and
commodities. Since October 2010 the US
currency has risen by 5% against the euro at the
same time that the index has gained 9% in USD.
The weaker euro has exacerbated the increase in
commodity prices, creating higher inflation, not
least in countries where energy and food
consumption weigh heavily. The highest inflation

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

No. 1 • 12 January 2011

in the EU in November was in Romania (7.7%), 100 dollar, which could jeopardise the global
Estonia (5.0%) and Greece (4.8%). recovery.

Swedbanks Commodity Price Index in different currencies Oil price and average forecast for 2011-2012 in USD

150
150
140
130
140 120
EUR
110
100

USD/Barrel
130
90
80
120
70
60
SEK
110 50
40

100
USD 30
05 06 07 08 09 10 11 12
Källa: Swedbank, Reuters EcoWin

90
12

10

11

12
1

9
m

The major increase in food prices, which began

m

m
10

10

10

10

10

10

10

10

10
09

10

10

10
20

20

20

20

20

20

20

20

20
20

20

20

20

last summer, continued in December, when the

food price index rose by 6.0% compared with
Prices of energy commodities again began to November. This means that food prices have
accelerate in November and December. On risen by 26% in 12 months. Grain prices, which
average, oil rose by 6.5% in December, while the rose significantly in September and October,
price of coal climbed by no less than 11.8%. The stabilised temporarily in November before
big increase is partly due to the cold winter and accelerating again in December. Other food
historic floods in Australia. A substantial drop in products such as coffee, oilseeds and beverages
coal production in Australia, which accounts for have become more expensive, which taken
around 40% of the world's total coke production, together are putting pressure on household
could lead to a coal shortage, which would consumption. Lower food production owing to
especially hurt the steel industry – and the energy unfavourable weather conditions is a main reason
sector as well. Coal plays a vital role in global why inventories are lower than expected. Political
energy production, particularly for emerging Asian decisions such as the export caps in Russia and
economies. The fact that global oil consumption Ukraine to ensure domestic food supplies have
will rise faster in 2011 not only in emerging further tightened supply conditions, which also
economies but also in OECD countries, which tends to lead to increased speculation. We expect
account for around 60% of global consumption, is the increase in food commodity prices to slow in
also driving prices higher. We expect the average 2011, when global production rises and the
price of oil to rise from USD 80 a barrel last year temporary impact of weather conditions fades.
to USD 87 in 2011, even though the momentum in The price increase in the latter part of 2010
global GDP growth will be lower than last year. If means, however, that the average increase will be
the dollar continues to appreciate, as expected, greater this year than last. Global food supplies
the price increase will be higher in euro terms, are proving highly vulnerable to production
with the risk of rising inflation, especially in disruptions at the same time that global demand is
countries where energy consumption weighs trending higher as the purchasing power of
heavily in the consumption basket. population-dense economies strengthens and
economic prospects brighten.
This probably means that today’s high oil price of
just over USD 95 is temporary and that it will fall Price development for different food commodities, in USD
when this unusually cold season ends and
warmer weather returns. At the same time the oil 180
2008-12-31=100

market is still facing excess supply, even though 170

inventories have dropped in recent months, which 160

150 Sugar, beverages

indicates that the price gains have also been the
140
result of increased expectations and speculation. Food prices, total
Index

130
Global pressure on OPEC countries, which 120

provide over 35% of global production, to raise 110

production levels is likely to mount if oil prices 100

Cereals
should stabilise at current levels or reach USD 90
jan mar maj jul sep nov jan mar maj jul sep nov jan mar maj jul sep nov
08 09 10
Source: Reuters EcoWin

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 Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 1 • 12 January 2011
Other than foods, metals posted the strongest
price gains in 2010, although there are relatively
big differences between product groups. Among
metals, nickel and copper rose the most (by
41.6% and 31.1%, respectively) between
December 2009 and December 2010. Zinc and
lead, on the other hand, have been the weakest in
the group. Although the price of iron ore has fallen
for two consecutive months in USD, it is still over
70% higher than in 2009. We expect metal prices
to continue to rise in 2011, though at a slower
pace as global inventories shrink. Ferrous metals
rose by 35% in USD last year and are expected to
increase by an average of 8-12% this year.
Metals, where supply conditions are limited, have
the biggest potential for further price increases.
Copper and tin inventories have fallen to the
lowest levels since 2008. The expected rise in
metal prices is based, however, on the continued
strong expansion of the Chinese economy, which
accounts for slightly over 40% of global metal
consumption. Government concerns about the
high inflation rate (5.1% in November) and rapidly
rising asset prices have led to several austerity
packages, and more are likely in the year ahead.
The effect of austerity policies on the Chinese
economy and commodity demand could lead to
increased volatility in global commodity markets.
Among precious metals, silver continues to rise in
price, while gold has stabilised at a high level of
just under USD 1 400 per troy ounce. Although
gold is under pressure from the stronger dollar,
there is still an underlying demand, not least due
to growing inflation concerns, the same time that
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the debt crisis’s impact on the macro economy
isn’t over yet. Gold’s status as a safe haven
among financial investors is likely to continue as
long as global imbalances remain. Silver’s use in
an increasing number of commercial applications,
thanks in no small part to its favourable physical
properties, has led to higher price levels. There is
still a long way to go to reach the 1980 level,
however, when the price of silver reached USD 48
per troy ounce for a short period of time.
Geologists are warning of a future silver shortage
if the current increase in consumption continues.
We feel that today’s price increase rests more on
fundamentals.
In addition to changes in supply and demand,
commodity prices are increasingly affected by
financial flows. Low nominal interest rates have
led to rapidly expanding liquidity in global financial
markets, where an increasing share of investment
capital is turning to commodity markets. This
tends to drive up prices even further, especially
when there are fundamental imbalances. Our
expectation of unchanged benchmark interest
rates in the US and in EMU countries in 2011 and
further unconventional measures in the form of
central banks’ bond purchases would mean
continued high liquidity in the global financial
market, which should also drive up commodity
prices unless the global economy proves weaker
than expected.
Jörgen Kennemar
 Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued

No. 1 • 12 January 2011

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

Basis 2000 = 1oo 12/01/11 Basis 2000 = 1oo 12/01/11
10.2010 11.2010 12.2010 10.2010 11.2010 12.2010
Total index 288.2 297.1 314.2 Total index 209.0 220.3 233.6
Per cent change month ago 5.5 3.1 5.8 Per cent change month ago -0.2 5.4 6.1
Per cent change year ago 17.8 16.5 25.0 Per cent change year ago 13.1 14.8 19.7
Total index exclusive energy 279.4 283.8 292.7 Total index exclusive energy 202.6 210.4 217.6
Per cent change month ago 2.1 1.6 3.1 Per cent change month ago -3.4 3.9 3.4
Per cent change year ago 35.6 34.3 33.2 Per cent change year ago 30.2 32.3 27.6
Food, tropical beverages 256.7 270.1 286.2 Food, tropical beverages 186.1 200.2 212.8
Per cent change month ago 4.4 5.2 6.0 Per cent change month ago -1.2 7.6 6.3
Per cent change year ago 19.3 23.4 26.1 Per cent change year ago 14.5 21.6 20.8
Cereals 252.5 257.1 278.9 Cereals 183.1 190.6 207.4
Per cent change month ago 5.2 1.8 8.5 Per cent change month ago -0.5 4.1 8.8
Per cent change year ago 34.9 29.7 36.2 Per cent change year ago 29.4 27.8 30.5
Tropical beverages and tobacco 270.9 285.2 301.5 Tropical beverages and tobacco 196.4 211.4 224.2
Per cent change month ago 2.5 5.3 5.7 Per cent change month ago -3.1 7.6 6.0
Per cent change year ago 14.4 21.1 22.5 Per cent change year ago 9.8 19.4 17.4
Coffee 161.6 173.9 183.8 Coffee 117.2 128.9 136.7
Per cent change month ago -1.2 7.6 5.7 Per cent change month ago -6.5 10.0 6.0
Per cent change year ago 33.4 45.3 47.0 Per cent change year ago 28.1 43.2 40.9
Oilseeds and oil 228.7 246.1 258.0 Oilseeds and oil 165.8 182.4 191.8
Per cent change month ago 9.1 7.6 4.8 Per cent change month ago 3.2 10.0 5.1
Per cent change year ago 22.4 25.2 28.7 Per cent change year ago 17.4 23.4 23.3
Industrial raw materials 286.0 287.8 294.6 Industrial raw materials 207.4 213.3 219.0
Per cent change month ago 1.5 0.6 2.3 Per cent change month ago -4.0 2.9 2.6
Per cent change year ago 40.6 37.6 35.4 Per cent change year ago 35.0 35.6 29.7
Agricultural raw materials 185.7 190.7 193.2 Agricultural raw materials 134.6 141.4 143.6
Per cent change month ago 6.1 2.7 1.3 Per cent change month ago 0.4 5.0 1.6
Per cent change year ago 27.4 24.8 23.1 Per cent change year ago 22.2 23.0 18.0
Cotton 112.5 132.0 140.8 Cotton 81.6 97.9 104.7
Per cent change month ago 16.2 17.3 6.7 Per cent change month ago 10.0 20.0 7.0
Per cent change year ago 71.5 92.1 88.5 Per cent change year ago 64.6 89.4 80.6
Softwood 153.5 149.3 144.6 Softwood 111.3 110.7 107.5
Per cent change month ago 2.9 -2.7 -3.1 Per cent change month ago -2.7 -0.5 -2.9
Per cent change year ago 13.5 6.5 3.4 Per cent change year ago 8.9 5.0 -0.9
Woodpulp 966.4 956.9 949.8 Woodpulp 700.6 709.4 706.2
Per cent change month ago -0.6 -1.0 -0.7 Per cent change month ago -6.0 1.2 -0.5
Per cent change year ago 30.4 23.9 19.3 Per cent change year ago 25.1 22.1 14.3
Non-ferrous metals 263.7 264.0 275.6 Non-ferrous metals 191.2 195.7 204.9
Per cent change month ago 8.1 0.1 4.4 Per cent change month ago 2.3 2.4 4.7
Per cent change year ago 28.6 24.4 22.2 Per cent change year ago 23.4 22.6 17.0
Copper 8291.8 8469.1 9130.1 Copper 6011.6 6278.2 6788.0
Per cent change month ago 7.6 2.1 7.8 Per cent change month ago 1.8 4.4 8.1
Per cent change year ago 31.9 26.9 31.1 Per cent change year ago 26.6 25.0 25.6
Aluminium 2346.1 2332.6 2347.4 Aluminium 1700.9 1729.2 1745.2
Per cent change month ago 8.5 -0.6 0.6 Per cent change month ago 2.7 1.7 0.9
Per cent change year ago 24.9 19.7 7.8 Per cent change year ago 19.9 18.0 3.2
Lead 2379.0 2376.1 2404.9 Lead 1724.8 1761.4 1788.0
Per cent change month ago 8.9 -0.1 1.2 Per cent change month ago 3.1 2.1 1.5
Per cent change year ago 6.2 2.9 3.5 Per cent change year ago 1.9 1.5 -0.9
Zinc 2371.8 2291.1 2272.7 Zinc 1719.6 1698.4 1689.7
Per cent change month ago 10.3 -3.4 -0.8 Per cent change month ago 4.3 -1.2 -0.5
Per cent change year ago 14.5 4.5 -3.9 Per cent change year ago 9.9 3.0 -8.0
Nickel 23802.0 22905.5 24055.5 Nickel 17256.5 16979.9 17884.7
Per cent change month ago 5.1 -3.8 5.0 Per cent change month ago -0.5 -1.6 5.3
Per cent change year ago 28.5 34.8 41.6 Per cent change year ago 23.3 32.9 35.6
Iron ore, steel scrap 605.3 603.0 607.0 Iron ore, steel scrap 438.8 447.0 451.3
Per cent change month ago -8.6 -0.4 0.7 Per cent change month ago -13.5 1.9 1.0
Per cent change year ago 75.0 75.0 73.4 Per cent change year ago 68.0 72.5 66.1
Energy raw materials 292.1 303.0 323.8 Energy raw materials 211.8 224.6 240.7
Per cent change month ago 7.1 3.7 6.8 Per cent change month ago 1.3 6.1 7.2
Per cent change year ago 11.6 10.4 21.9 Per cent change year ago 7.1 8.8 16.8
Coking coal 369.2 406.7 454.7 Coking coal 267.7 301.5 338.1
Per cent change month ago 4.1 10.2 11.8 Per cent change month ago -1.6 12.6 12.1
Per cent change year ago 36.8 38.6 48.5 Per cent change year ago 31.3 36.6 42.3
Crude oil 288.6 298.3 317.8 Crude oil 209.2 221.1 236.3
Per cent change month ago 7.2 3.4 6.5 Per cent change month ago 1.5 5.7 6.8
Per cent change year ago 10.4 9.0 20.5 Per cent change year ago 6.0 7.4 15.5

Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg Source : SWEDBANK and HWWA-Institute for Economic Research Hamburg

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

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