Press Rlease Press Release 30/07/09 The Halifax Commodities Monitor tracks the price performance of 20 major commodities across the four key commodity types (Energy, Precious Metals, Base Metals and Agriculture) over the first half of the year (June 2009) and over one and ten years periods. Prices Rise By A Tenth Over The First Half Of The Year New research by Halifax shows that commodity prices rebounded over the first half of the year amid increasing optimism regarding the prospects for the global economy. prices rose by an average of 10% 1 during the first six months of 2009. In contrast, retail prices increased by 0.2% over the same period. At a sector level 2 (i.e. precious metals, base metals, energy and agriculture), base metals recorded the sharpest price rise over the past six months (52%), boosted by resilient demand from China. Energy prices (43%) recorded the second highest increase. Agricultural prices fell by 1%. 16 of the 20 commodities tracked saw a price increase over the period, highlighting the broad nature of the recent rally. Lead recorded the largest increase (82%), rising from $949 per tonne in December 2008 to $1,730 per tonne in June 2009. Copper saw the second highest rise (76%) followed by crude oil (57%). At the other end of the scale, the price of natural gas fell by 35%; this decline was partly due to supply improvements. Suren Thiru, economist at Halifax, commented: " prices have rallied somewhat since the start of the year, following the rapid falls in the second half of 2008. Growing optimism that the global economy is on the road to recovery and the weakness in the value of the US dollar have been important drivers behind the price rises." "However, the recent rally must be put into context with prices still a third lower than a year ago. Looking forward, commodity prices are expected to remain relatively subdued in the medium term with any sustained price recovery likely to be driven by demand from China and India due to the ongoing industrialisation taking place in both countries." Key Drivers of the Commodities Markets Improved sentiment regarding the prospects of a recovery in the global economy has helped to boost commodity prices. For example, the International Monetary Fund (IMF) recently upwardly revised its forecast for global economic growth 3 for 2010 to +2.5% in July from its previous estimate of +1.9%.
The majority of commodities are priced in US dollars, meaning that a weakening in the US dollar encourages rising commodity prices. The US dollar has fallen by 2% on a trade weighted basis in the past six months. The weakening in the dollar has helped to push investors into commodities by increasing the purchasing power of other currencies. Low interest rates in major economies. The official interest rates in the major economies have generally been at record lows with the UK and US rates close to zero and the Euro-zone key rate at just 1.0%. Low interest rates and government stimulus packages should provide a boost to demand in the global economy over the coming months. Other key findings The average price of crude oil rose by 57% over the first half of the year from an average of $45 per barrel in December 2008 to $70 per barrel in June 2009; a rise of $25. Nonetheless, the average price of a barrel of crude oil in June 2009 was half the value a year earlier ($140 per barrel). The price of gold rose from $862 per ounce in December 2008 to $938 per ounce in June 2009, an increase of 9%. This was significantly lower than percentage increase in the value of lead, the top performing commodity (82%). Gold has performed well over recent times, providing something of a hedge for investors against inflation. However, with inflation bearing downwards, the demand for this precious metal has softened over recent months. Sugar was the only commodity to record double digit growth across the past year as well as over the six months to June. The price of sugar in June 2009 was 49% higher than at the start of the year and 33% higher in annual terms. Demand for sugar from the biofuel industry and supply side pressures have been key drivers behind the price rise. Over one year prices down by a third over the past year Between June 2008 and June 2009, commodity prices have fallen by an average of 33% 1. At a sector level 2, energy prices saw the largest decline (-50%) followed by base metals (-38%). 90% of commodities have fallen in price In annual terms, 18 of the 20 commodities tracked have fallen in value. With a 72% decrease in prices, natural gas recorded the strongest fall during the last year. Heating oil (-56%) recorded the second biggest drop, followed by crude oil and corn (both 50%). Over 10 years prices up by 108% over the decade Between June 1999 and June 2009, commodity prices have risen by an average of 108%. This is almost four times the rate of retail price inflation (29%). At a sector level, energy commodities have recorded the highest increase (258%). Heating oil has seen the strongest price growth since 1999 Heating oil has been the best performing individual commodity over the past decade with a price increase of 284%, followed by crude oil (263%) and gold (259%). In contrast, cotton was the only commodity to record a fall in value over the period (-8%). Overall, 13 out of the 20 commodities tracked have at least doubled in value. Ends. 2 of 5
Editors' Notes 1 Based on the Reuters CRB Price Index 2 sectors Agriculture: S&P GSCI Agricultural Index, Base Metals: MG Base metals index, Energy: Reuters CRB Energy Index, Precious Metals: Reuters CRB Precious metals Index 3 IMF world economic outlook All data is supplied by Datastream. Data up until 30 th June 2009 has been used in this analysis. The following indices have been used as benchmarks for the respective commodity price groups: Commodities: Reuters CRB Price Index Agriculture: S&P GSCI Agricultural Index Base Metals: MG Base metals index Energy: Reuters CRB Energy Index Precious Metals: Reuters CRB Precious metals Index Table 1: price performance over year to June and over one year % change Jun-08 Dec-08 Jun-09 since start of the year 1 year % change Lead 1,735.3 948.5 1,729.5 82% 0% Copper 8,775.3 2,901.5 5,107.8 76% -42% Crude Oil US$/barrel 140.0 44.6 69.9 57% -50% Sugar 12.8 11.5 17.1 49% 33% Nickel 21,672.5 10,807.5 16,005.0 48% -26% Tin 23,307.5 10,352.5 14,947.5 44% -36% Zinc 1,872.5 1,120.3 1,554.5 39% -17% Heating Oil US$/gallon 383.1 128.0 170.3 33% -56% Platinum US$/troy ounce 2,064.0 898.0 1,186.0 32% -43% Silver US cents/troy ounce 1,765.0 1,079.0 1,394.0 29% -21% Soyabeans US cents/ bushel 1,565.0 958.0 1,170.0 22% -25% Aluminium 3,074.0 1,454.0 1,615.8 11% -47% Cotton 67.5 46.0 50.4 9% -25% Gold US$/troy ounce 922.6 862.2 938.1 9% 2% Coffee 144.2 101.1 109.7 9% -24% Cocoa 3,188.8 2,573.4 2,632.8 2% -17% Corn US cents/ bushel 680.5 378.5 338.0-11% -50% Wheat (soft red) US cents/ bushel 610.5 488.5 430.5-12% -29% Wheat (hard) US cents/ bushel 895.0 657.0 551.8-16% -38% Natural Gas US$/mmbtu 13.1 5.6 3.7-35% -72% 3 of 5
Table 2: price performance over 10 years 10 year % Jun-99 Jun-09 change Heating Oil US$/gallon 44.3 170.3 284% Crude Oil US$/barrel 19.3 69.9 263% Gold US$/troy ounce 261.2 938.1 259% Lead 485.0 1,729.5 257% Platinum US$/troy ounce 349.0 1,186.0 240% Copper 1,535.8 5,107.8 233% Nickel 5,402.5 16,005.0 196% Tin 5,222.5 14,947.5 186% Sugar 6.1 17.1 183% Soyabeans US cents/ bushel 426.5 1,170.0 174% Silver US cents/troy ounce 521.8 1,394.0 167% Cocoa 1,156.0 2,632.8 128% Wheat (hard) US cents/ bushel 269.5 551.8 105% Wheat (soft red) US cents/ bushel 228.5 430.5 88% Corn US cents/ bushel 190.0 338.0 78% Natural Gas US$/mmbtu 2.3 3.7 57% Zinc 1,007.8 1,554.5 54% Aluminium 1,367.3 1,615.8 18% Coffee 101.5 109.7 8% Cotton 54.6 50.4-8% Table 3: price performance by sector over year to June, one year and 10 years Since start of Sector Index year 1 yr 10 yrs Commodities CRB Continuous Index 10% -33% 108% Energy Reuters CRB Energy Index 43% -50% 258% Precious Metals Reuters CRB Precious Metal Index 17% -24% 212% Base Metals MG Base Metal Index 52% -38% 114% Agriculture S&P GSCI Agricultural index -1% -35% 84% 4 of 5
Composition of each commodity price group Agriculture Cocoa Coffee Corn US cents/ bushel Cotton Soyabeans US cents/ bushel Sugar Wheat (hard) US cents/ bushel Wheat (soft red) US cents/ bushel Aluminium Copper Lead Nickel Tin Zinc Base Metals Crude Oil Heating Oil Natural Gas Energy US$/barrel US$/gallon US$/mmbtu Gold Platinum Silver Precious Metals US$/troy ounce US$/troy ounce US cents/troy ounce "This report is prepared from information that we believe is collated with care, however, it is only intended to highlight issues and it is not intended to be comprehensive. We reserve the right to vary our methodology and to edit or discontinue/withdraw this, or any other report. Any use of this report for an individual's own or third party commercial purposes is done entirely at the risk of the person making such use and solely the responsibility of the person or persons making such reliance. HBOS plc all rights reserved 2009." 5 of 5