Forex & Commodities Report: October 2017Nov 10, 2017
Trends in the prices of commodities and major currencies can help supply chain managers understand how prices of their sourced materials may change in the immediate future. This overview is a quick look at how the pricing for common commodities and major currencies have changed over the last month.
Most of the Texas-based production plants impacted by Hurricane Harvey returned to full capacity during October and three new polyethylene plants began to increase production. Supply is still tight for polypropylene, especially higher-end resins, and is likely to continue into the new year.
At the same time, resin imports continued to come into the U.S. While this should eventually push prices down, suppliers are still trying to catch up from the hurricane impact and buyers are backing off all but the most urgent orders until prices even out, so the market ended the month with little activity.
Domestic prices for many resins, while down slightly from last month, are still well above international prices. Buyers may notice higher prices for polymers needed immediately and lower costs for purchases that are at least 2 to 3 weeks from shipping.
Growers began to realize the extent of damages to the cotton crop due to Hurricane Harvey, and at the end of October reported losses of 200,000 bales on stalk and 200,000 bales harvested that were exposed to the weather. Total cost of the loss is estimated at nearly $100 million.
However, the cotton harvest in the rest of the U.S. and around the world is still looking fine, and some estimates put supply ahead of demand both domestically and internationally. The speculation caused prices to move lower toward the end of the month; this trend may continue into November as more of the season's crop is successfully harvested and becomes ready for production.
While the cost of wood pulp has stayed relatively steady for most of the summer, it appears to be heading up. Hurricanes Harvey and Irma impacted 18 pulp and paper mills, leading to a supply disruption that began to be felt in October. Meanwhile, demand for pulp to make paper-based packaging and other materials is starting to slowly increase. It's unlikely that there will be a dramatic and rapid increase in wood pulp prices, but look for the costs to rise through the end of the year and into 2018.
Aluminum prices continued to climb in October, rising from $2,101 per metric ton at the beginning of the month to $2,160 by the 31st. Reduction in supply from China is part of the reason as that nation makes environmentally related cuts to production and cracks down on illegal suppliers. Prices should remain high and perhaps even continue to rise through November.
Gold prices dropped sharply at the beginning of October but rose to more than $1,300/ounce mid-month. The metal closed at $1,270.68 at the end of the month. Expect prices to bounce around a little as the dollar continues to weaken and unrest around the globe jumps. With the U.S. Federal Reserve making noise about raising rates before year's end, it's possible that gold will drop more next month.
Nickel prices are continuing to rise, shooting from $10,304.50/metric ton in early October to $11,546 by the month's end. Strong demand -- partly due to the use of nickel in electric vehicle manufacturing -- was expected to go down but showed no signs of doing so last month. Expect prices to continue their rise, though maybe not as impressively, in November.
Copper is another strong performer on the futures markets, with costs rising from $6,446.25/metric ton on Oct. 2 to $6,816.75 on the 31st. Chile, one of the largest exporters of the metal, announced in October that its output is predicted to rise 7 percent next year, so that may have kept prices from skyrocketing as much as nickel.
Investors are moving toward platinum, and the increased demand caused prices to rise and jump around in October. In fact, prices jumped from $912/ounce Oct. 1 to nearly $950/ounce mid-month before finishing October at $920. The World Bank predicts that demand for auto catalysts that use platinum will increase due to new European emissions regulations, and this may be a factor in platinum prices continuing to rise in November.
The price of silver started October at $16.65/ounce and rose slightly to $16.71 by Oct. 31. In between, prices fluctuated, rising as high as $17.41 mid-month. Though industrial demand for silver continues to rise, new technology may mean less is needed to make photovoltaic cells. However, supply is also dipping. The World Bank predicts an overall drop in silver prices by the end of the year.
The U.S. dollar had a strong October, finishing the month in its highest performance since February. The future position of the dollar against world currencies will depend on what happens with the U.S. Federal Reserve and their decision on whether or not to raise interest rates, and the U.S. Congress and what they decide to do about tax reform. In general, the dollar looks stronger against most world currencies for the month.
The most recent numbers on manufacturing and construction in the U.K. are lower than analysts predicted last month, leading to the pound's lackluster performance in October. Questions about whether the government will raise interest rates also kept the pound slightly lower.
The pound's drop against the dollar in early October may also have resulted from stalled talks for when and how the U.K. will leave the European Union ("Brexit"). But overall for the month, the pound dropped only slightly, moving from 0.75347 on Oct. 2 to 0.75290 on Oct. 31. It will likely rise against the dollar in November, as the Bank of England is expected to approve the first rate hike in a decade.
The Euro continued to stay relatively steady against the dollar in October. The month opened with the dollar worth 0.85234 Euros and ended at 0.85865. This likely resulted from the markets' rise after the European Central Bank announced changes to the rate and timing of when it will make future bond purchases.
Political factors in Europe also play a role in the small drop since September: Brexit talks are stalling; Austrians voted for populist leaders on the heels of a similar move in Germany; and the Catalonian vote for independence from Spain is still controversial.
The Japanese Yen looked like it was rising slightly against the U.S. dollar in October, but you wouldn't know it by comparing the numbers from Oct. 2 to the 31st. Despite mid-month volatility and a considerable jump downward at the month's end, the yen went from 112.73093 on Oct. 2 to 113.67399 on Oct. 31 for a slight drop against the dollar.
Japan's recent elections resulted in a dominant win for the ruling Liberal Democratic Party and Prime Minister Abe, but concerns about neighboring North Korea and a potential increase to Japan's military raise concerns. On the positive side, Japan's economic growth looks as though it will continue.
A small drop against the U.S. dollar marked the month for the Australian dollar; it moved from 1.27697 at the beginning of October to 1.30617 on Oct. 31. Most of that move was at the tail end of the month, and came from stronger economic news in the U.S.
As well, credit slowed for both public and private investment in Australia throughout September, leading to the Australian dollar's stagnant performance in October. Housing credit growth is, however, still growing -- and outpacing household income, leading to the possibility of a bubble that could influence the Australian economy negatively in the future.
The Canadian dollar dipped against the U.S. dollar in October, moving from 1.25108 in early October to 1.28924 on Oct. 31. Most of this is due to the belief that the Bank of Canada, having raised interest rates in May, won't do so again this fall. Its governor said that the Bank will look at data and work toward moderate growth, so another hike is unlikely to come before January. The Canadian economy also looks relatively weak compared to its standing in the summer.
Switzerland's franc fell a bit against the dollar in October, moving from 0.97482 to 0.99724 over the course of the month. Most of this is due to the U.S. dollar strengthening as opposed to anything related to Swiss monetary policy or economy. However, the Swiss Franc is tied somewhat closely to the Euro, and the latter's inability to move against the dollar likely influenced independent European currencies like the franc.
Against the U.S. dollar, the Chinese Yuan made a slight improvement in October, moving from 6.65215 on Oct. 2 to 6.63435 on Oct. 31. A U.S. Treasury report released during the month listed China as being on a currency "monitoring list" -- primarily due to the large trade surplus with the U.S. and China's lack of progress on importing more U.S. goods. The $34.9 billion trade deficit between the U.S. and China was at a 2-year high in August.
This information is intended to be a general overview and should not be taken as investment advice. Market data can help supply chain managers sourcing materials from around the world better understand how prices are likely to change in the near future. This overview is a general look at how world currencies and commodities are faring. Price data for agricultural and metals commodities was taken from World Bank reports.
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