Commodity prices up 6% in May to nine-month high: HSBC

SYDNEY - Commodity prices rose again in May, to reach a nine-month high. In a research note, HSBC’s Chief Economist for Australia and New Zealand, Paul Bloxham, says the bank’s proxy for the IMF commodity price index points to a 6% gain in the month, which would see
prices up 24% from their January-trough.

“The gains in the month were fairly broadbased, with 18 of the 32 commodities in the index showing higher prices,” Bloxham says. “The strongest gains were in soybean meal, pork, sugar and oil prices.

“The lift in oil prices reflects supply disruptions in Canada and Nigeria, but also a more sustained pull-back in non-OPEC production, reflecting lower profitability and a retreat in investment. We see the fundamentals as supporting the view that commodity prices have passed their trough.

“Oil price gains were, once again, the key driver of the increase in our index, which gives oil a weighting of a little over 50%. Oil prices rose by 12% in May on average, with the Brent price temporarily breaking through USD50 a barrel for the first time in six months.

“Temporary supply disruptions due to wildfires in Alberta contributed to the lift in oil prices during the month, as did militant attacks on Nigerian oil facilities. Reduced US oil inventories also supported the oil price rise. At the same time, some part of the lift in oil prices since January is likely to reflect a more sustained pullback in non-OPEC production, as lower oil prices have weighed on oil producer profitability and seen a substantial cutback in new investment.

“Metals prices generally fell in May, led by declines in iron ore (-9%), copper (-3%) and nickel (-2%) prices. To some degree, the decline in iron ore prices reflects fundamental supply and demand forces re-asserting themselves, after speculative activity was a driver of the earlier rally.

“Australia's commodity price index fell by 0.9% in USD terms, to be 9.6% lower y-o-y. However, in AUD terms, the index rose by a strong 3.8% in May, and is only 2.5% lower y-o-y, as the fall in the AUD has helped to offset the impact on the local economy.”  www.hsbc.com.au (ATI).