Non-energy commodity prices fell by 7.6 percent in October—a third straight monthly decrease—on growing worries about demand, and in part due to dollar appreciation (up 0.9 percent against a broad group of U.S. trading partners). Declines were heaviest for metals due to concerns about global industrial production, but agriculture prices also fell sharply on improving supplies. Oil prices slipped below $100/bbl on slowing demand growth and supply gains, but light/sweet crude and distillate markets are tight ahead of peak winter demand.
Crude oil prices declined 1.0 percent in October, with the World Bank average price at $99.9/bbl, but low stocks and rising seasonal demand continue to underpin prices. The spread between Brent and WTI, which reached $30/bbl during September, nearly halved in early November. WTI prices rose following stock draws in the bottlenecked mid-continent, as producers shipped crude to Gulf coast refiners by rail, barge and truck—an arbitrage opportunity made profitable by the large discount. Meanwhile Brent prices eased as production in the North Sea began to stabilize and Libyan crude output recovered faster than expected to—more than 0.5 mb/d at month-end (still well below pre-crisis levels of 1.6 mb/d). Libyan exports have been limited thus far but 0.4 mb/d are expected to be shipped in November. Despite improving crude production, distillate supplies (heating oil and diesel) remain tight approaching peak winter demand, as light/sweet crude losses this year reduced both distillate production from refineries and inventories.
Agriculture prices fell by 5.9 percent in October—the fifth decrease over the past six months—on steadily improving supply conditions. The largest decline was for raw materials, down 9 percent, as rubber prices dropped on concerns over Chinese demand, while cotton prices slid on improved global supply prospects and weaker textile demand. Beverage prices fell 7 percent on expected record coffee crops in Brazil and Viet Nam, and a cocoa surplus for 2010/11. Fats and oils prices also fell 7 percent, amid higher production of palmkernel oil in Malaysia, and ample exports of soybean oil in South America and palmoil in Malaysia. Grains prices fell 5 percent following a USDA report of a higher global maize crop. Wheat production is also increasing in Australia, Canada, Russia and the Ukraine, and Argentina is experiencing favorable weather.
Metals and minerals prices plunged 11.2 percent in October on worries about global demand. The largest decline was for silver on investor liquidation and slowing industrial demand. Iron ore prices fell 15 percent on slowing demand from steel producers in China and Europe. Iron ore prices may also have declined because of an expected shift from contracts based on lagged quarterly prices to spot pricing, which caused traders to temporarily vacate the spot market. Lead, copper and zinc prices fell 10 percent or more on an uncertain demand outlook. Copper’s decline occurred despite falling stocks, rising Chinese imports, and strikes at major mines. Stocks fell for all metals except lead as battery plants in China undergo environmental inspection.
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