Commodity Markets Commodity Markets: Facts and Trends

Editor: Dominik Stephan

Commodity prices only recently gave in by about five percent – analysts blame the recent turbulences in the world economy. A new report by the German industrial bank IKB provides detailed insight for different commodities and materials.

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Demand for chemicals scored by regions. (Picture: IKB)
Demand for chemicals scored by regions. (Picture: IKB)

Commodity prices gave in slightly during August – just as previous forecasts had predicted. In terms of US $, prices decreased by five percent, slightly less so in Euro. This overdue correction is overshadowed by the political instability in some Middle Eastern and North African countries, but also by the recent debt crisis in the US and the Eurozone. German industrial bank IKB recently issued an overview of the current facts and trends on the world's commodity markets.

The situation in North Africa has its impacts on the world’s commodity prices: Lybia, once a major exporter of crude oil, currently plays no role on the internal oil exports. Although fighting seems to come close to an end after the fall of Tripolis, a resume of the Lybian oil exports is not expected for 2011.

A current market repot by IKB nevertheless sees no reason to worry: the OPEC reserves are more than sufficient to take over the Lybian output loss, IKB states. After turmoils on the world stock exchanges, the price for crude oil gave in significantly, but recovered by the end of August. IKB expects the price to fluctuate between US $ 100 and 120 per barrel Brent and feels reassured in its prognosis by the announced embargo against oil exports from Syria.

Crude-Oil and Naphtha: Brief Facts

  • US oil stocks down to 357 million barrels
  • Prices between US $ 4 to 5 per mm btu for late 2011
  • Gas prices to rise
  • Naphtha and ethylene profits from lower crude prices
  • Positive Cracker margin expected for 2011
  • PA 6 remains stable

Rising Gas Prices Expected

As usual for the season, the U.S. crude stocks have declined to 357 million barrels. The stocks for gasoline, distillates and propane gas are even significantly below the previous year’s value. Analysts expect no consequences, given the recent economic situation in the states. Should the recent hurricane-season lead to production losses, the U.S. could nevertheless be forced to buy oil products in Europe.

Gas reserves are never relative stable and Europe’s supply with natural gas from Russia is on a high but steady level. Rising gas prices in Europe are expected for October and the beginning of the heating period 2011/2012. Prices between US $ 4 to 5 per mm btu are expected for the fourth quarter of 2011, with a tendency to rising prices towards the end of the year.

The declining price for crude oil also had their effect on the global supply of plastics and polymers. Naptha and ethylene prices gave in slightly while propylene prices dropped by 24 percent, after overcoming production bottlenecks in June. Ethylene gave in by three percent.

Cracker Margin Dropped

The decreasing olefin price had the cracker margin drop to a negative value in July. The overall trend is, nevertheless, positive with a positive margin expected for 2011.

The basic materials for plastics and polymers did not develop unisonous: Naphta, ethylene, propylene and vinylchloride prices dropped in August, benzene, styrene, paraxylol and caprolactam are more expensive than before.

IKB analysts expect decreasing prices for most basic materials: September-contracts for ethylene, propylene, benzene and styrene were already signed for low sums. The spotmarkets are expected to follow this development. Coping with the volatile nature of the markets is a difficult task: "The commodity markets are still far from being fully developed," state Consulting specialists Pricewaterhouse Cooper. Most of the products and raw material of the chemical industry are not traded on forward markets or face only illiquid futures. To use derivative security measures is therefore both difficult, and, because of the contangos on small markets, cost intensive. Pricewaterhouse Cooper nevertheless underlines the importance of a well balanced risk–management to secure commodity price risks for the industry.