According to an AKD report, global commodity prices remained under pressure during November 2015. A strengthening dollar and oversupplies kept the prices in check. Barring cotton, there was a decline in the prices of all the major commodities.
OPEC’s decision to maintain its production levels weighed on prices with Brent and Arab Light losing 10%MoM and 16.5%MoM respectively. The shift in China’s economic/trade policies dented international demand for coal and steel. From the market’s perspective, any further dip in oil prices is likely to restrict price performance for the heavyweight energy companies listed at the local stock exchanges.
Oil continued its descent in November, from modest gains made in October (WTI/ICE/Arab Light were up 3.3%/1.0%/2.9%MoM). Global oil indices were impacted by: 1) heightened expectations of raised supply from Iran, which unveiled contacts for delivery in late Jan, where inventories amounting to 40 million barrels are ready to ship, 2) bearish demand from China evident from weak industrial data and 3) strength exhibited by the US$ on growing expectations of interest rate hike by the US Fed.
Further weakness in oil markets in anticipated due to, 1) inconclusive meeting of OPEC oil ministers where no agreement was reached on a ceiling or rollover and 2) supply is expected to outpace demand for the coming year, as investments in upstream projects come online (Al Khalij Qatar and Jubail Saudi Arabia). The key checkpoints driving oil price expectations due this week include IEA Oil Market Report and OPEC monthly report.
Global cotton prices managed to recover since last month posting 2.1%MoM increase during the month under review and currently trading at USc71/lb. The increase came on the back of expectations for lower production this year, where USDA reduced its world production forecast for MY16 by 1.7 million bales on concerns of lower output from China, India and Pakistan.
On the domestic front Pakistan is expected to miss targets (USDA forecasts 1.3 million bales of imports for the year) where latest statistics by CGPA place cotton arrival as on 1st December 2015 reported at 8.6 million bales, lower 29%YoY. However, demand on the local front also remained dull from spinners on shutdown of spindles as well as financial constraints being faced by the textile industry. Local prices witnessed 2.5%MoM decline.
Though, coal prices saw slight recovery in November to average US$53.5/ton but continued its downward trajectory since then as concerns deepened about declining demand in an already oversupplied market. As per latest statistics, the world’s largest coal consumer – China has reduced its imports by 39%YoY in 10MCY15 due to a slowdown in industrial activity and a shift to other energy sources. Coal prices have shed 20%YoY CY15TD to average US$57.6/ton for the year. Outlook for coal prices remain weak with excessive supply from earlier expansions and continued demand side pressures from China. In this regard, the local Cements sector will continue to benefit from lower costs with coal forming close to half of raw material expense.
Weak Chinese demand is affecting steel prices. Oversupply continued to soften prices as Asian markets felt the brunt of this glut due to slowing infrastructure and property development in China (world largest producer and consumer). As their local steel demand tilt towards a slowdown, China has resorted to exporting steel products where 8MCY15 net exports came to 12% of domestic production as compared 10% in CY14.