Commodity Update: Minerals and Energy – September 2013

In September, overall demand for commodities gained support from progress in the global economic recovery. Positive data from major economies is adding to confidence that the recovery in the big advanced economies is currently on track.

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  • In September, overall demand for commodities gained support from progress in the global economic recovery. Positive data from major economies is adding to confidence that the recovery in the big advanced economies is currently on track, with improved momentum in manufacturing activity likely to support demand for commodities.
  • There was a notable increase in volatility across many commodity markets in the month. Contributing to this was the rise and ebb of the Syrian crisis, the uncertainty surrounding the timing of US Fed’s tapering of its asset purchases and the partial shutdown in the US government.
  • Oil prices were higher on balance in the month from the developments in the Syrian crisis and stronger real demand signals from the US, euro zone and China. However, WTI was disproportionately weighed down by the political uncertainty in the US.
  • Steel input markets have been relatively robust as Chinese steel mills press on with solid rates of production. Iron ore prices have eased but remain elevated, while restocking and cuts to marginal production are helping to lift coking coal prices from recent lows. In contrast, thermal coal prices are still facing headwinds, but appear to have reached a floor.
  • Base metals prices gained in August, largely reflecting better economic data, but have experienced volatility in September relating to uncertainty over US Fed tapering, the government shut down and the looming debt limit.
  • Demand for gold continues to be influenced by the stalemate over the US government budget and debt limit, as well as changed expectations for the timing of Fed tapering. The average price of gold softened by 0.2% in September, following a 5.2% rise in August, to around $1,310 per ounce currently.
  • Overall we have made few changes to our forecasts for commodity prices. Our near-term forecasts for gold and some metals were lowered slightly, but these were largely offset by upward revisions to oil and coking coal. We continue to expect only a modest recovery in demand over the forecast horizon, but the recovery is expected to be bumpy, ensuring ongoing volatility in commodity markets.

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