Manufacturing activity picks up momentum in early 2013

Purchasing manager surveys from the US, China and the Eurozone area indicate that manufacturing activity picked up momentum at the start of 2013 with purchasing managers indices reaching 22, 24 and 10 month highs respectively. Manufacturing activity continues to contract in the Eurozone area, remaining below 50 for the past 18 months.

HSBC Jan 2013 PMI US Euro China

In the Eurozone, despite rising input prices, cost inflation was at its lowest level for four months. This comes despite the sharpest rise in supplier lead times for 18 months Similarly, in the US cost price inflation continued to ease from its November peak. Markit report that iron, steel and packaging were most commonly reported by manufacturers as having increased in price. In contrast, Chinese input cost pressures increased at a faster rate but remain subdued. read more

Geopolitical risk: What are the commodity market hotspots?

Last week Deutsche Bank published their 2013 market outlook in which they identified several geopolitical risks to worry investors and businesses. They include a wide range of developed and less developed economies, many of which are key producers of commodities and/or a key link in product supply chains. If something goes awry in any of these hotspots what will be the impact on commodities?

Geopolitical hotspots 2013

The US/Middle East: The shift in the the US’ strategic priority from the Middle East to Asia has pros and cons for stability in the Middle East and by implication oil prices. Whereas previously the US might have intervened sooner in Syria sooner not so long ago the on-going conflict in the country as well as tension elsewhere (Israel/Egypt) has the potential to spiral out of control and drag other countries in the mix – potentially disrupting oil production. Unintended consequences. read more

Manufacturers to face lower input price pressure in 2013

The chart below shows The Economist commodity price index against the JP Morgan global manufacturing PMI input prices index, showing a close relationship between changes in commodity prices and manufacturing input costs albeit with some leads and lags in the data at various points.

Related article:

Commodity prices vs global manufacturing input index

The latest reading of The Economists commodity price index shows overall commodity prices (in dollar terms) were flat over the past twelve months, down just 0.2%. However this masks significant changes if we look at broader commodity classes. Industrial metal prices rose by 1.6% over the year, perhaps surprisingly an even bigger jump than for food, up 0.7%. Countering this was a decline of 7.3% in non-food agricultural commodities (such as cotton). read more

Commodity volatility lowest since mid-1990’s

Despite signs of economic, political and geopolitical uncertainty every where you look commodity price (perhaps surprisingly) volatility is now at its lowest level since mid-1990’s.

Historical commodity volatility

Also, as FT Alphaville report, according to Goldman Sachs commodity volatility has dropped far below the volatility of other asset classes. Despite a recent decline, US economic policy uncertainty is near record levels.

Related article: Commodity price volatility: Beware calm waters

US economic policy uncertainty

So what has caused this apparent anomaly? read more

Further reading: forecasts, risks and whats wrong with predictions

A Hard Landing In China Part 1 – Evolution And Response (ZeroHedge)

A Hard Landing In China Part 2 – Rest Of The World Impact (ZeroHedge)

Eurozone meltdown ‘cannot be discarded’ in dangerous mix of global risks, warns World Economic Forum (Telegraph)

Risk #1: Emerging markets (Foreign Policy)

Deutsche Bank Commodities Outlook 2013 (Commodities Now)

The economics of the platinum coin option (The Economist)

Why The Prediction Industry Must Be Disrupted (Pundit Tracker)

With a hedge, could Conoco have it all? (Betting the Business) read more

Scorching conditions in Australia may turn the heat on cotton prices

As Australia suffered its hottest day in history on Monday, the current heat-wave may help to support cotton prices with much of the country’s cotton crop (Australia is likely to be the second largest exporter in 2012/13) grown in those eastern states of New South Wales and Queensland.

Temperatures are forecast to continue to remain very high over the next week.  Cotton futures prices ended today down 0.44c per lb to 74.79c per lb.

Australia heatwave map