Reading the Commodity Market Barometer

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Since energy products are the backbone of the economy and are widely used by all sectors, the general belief is that a rise in energy commodity prices in translates to an increase in the price of non-energy commodities, such as metals and agricultural products. To assess the validity of this common belief, we’ll review two baskets of energy and non-energy commodities prices in the U.S. between 2012 and 2013.

Let’s compare short-term price indicators for different commodities. The first energy basket contains average weekly prices for the following energy commodities in 2013 and 2012: WTI crude, PRB coal, Henry Hub natural gas, and PJM electricity. The second basket contains the average weekly prices for the following non-energy commodities for the same period: gold, silver, aluminium, copper, soybean, wheat, corn, and sugar.

ZEMA Dashboard cross-commodity comparison in the U.S., 2012–2013
Figure 1: ZEMA Dashboard cross-commodity comparison in the U.S., 2012–2013 | Data Source: NYMEX

The ZEMA graphs above display NYMEX future settlements data for selected energy and non-energy commodities against annual average prices (represented with a grey line). The first row of graphs shows energy commodities; these commodities’ weekly price average movements are depicted against the annual price average. All selected energy commodities prices went up in 2013 as compared to 2012: WTI crude increased by 4%; PRB coal increased by 19%; Henry Hub natural gas increased by 32%; and day-ahead electricity prices in PJM increased by 13%. On the other hand, metals prices, which are displayed in the second row, dropped rather harshly (gold by 16%, silver by 24%, aluminum by 8%, and copper by 7%). Furthermore, agricultural prices, shown in the bottom row, fell slightly as soybean, wheat, corn, and sugar dropped by 3%, 10%, 17%, and 21% respectively.

Overall, then, the prices of major energy commodities in the U.S. increased in 2013 when compared to 2012 levels, while the prices of non-energy commodities took a dive in the same period. In the past, a rise in energy prices- particularly crude oil- was directly correlated with the increase in price of other commodities. This does not appear to be the case anymore. This positive correlation does not exist in the U.S., which suggests that non-energy commodity sector prices are responding to other factors. As such, the slight projected increase in 2014 U.S. crude oil prices (EIA AEO2014 Reference Case ) is likely to have miniscule, if any, impact on the rise of non-energy commodity prices in 2014.

As the ZEMA dashboard cross-commodity comparison showed, changes in U.S. energy commodity prices were not moving in tandem with the price changes of metals and agricultural products. The ZEMA Dashboard is an easily configurable canvas area that makes cross-comparison such as this very straightforward and intuitive.

To learn more about the role of the global energy mix and commodity prices, click here for the full article: Reading the Commodity Market Barometer: Energy and Non-Energy Commodity Price Movements.


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