Recent Spike in Commodity Prices Confounded Analysts


Tuesday, May 9, 2017 / 6:49 PM /FDC

The recent spike in commodity prices especially beans and yellow garri confounded most analysts. Also noteworthy is the price of cement which has spiked 17.3% to N2,700.

Typically the price of cement falls during the raining season. This contrarian movement is most likely due to the surge in demand due to an aggressive civil construction agenda of the federal and state governments.

In spite of these aberrational price increases, analysts are still convinced that the inflation numbers for April will still show a slight decline.

The FDC Think Tank summarizes these events in a month which promises to be interesting with the release of key economic variables.

Burning Economic Issues  

         Commodity prices move higher on aberrational factors

         Cement spikes on rising demand from recovery in government expenditure

         Oil prices volatile to the downside trading at $49.40pb

         FGN triples Niger Delta amnesty by an additional N30bn

         To keep production levels high as price dips

         Positive investor sentiment, propping a mini rally in the NSE

         NAFEX trading flat at N391, trading range of N350 – N425 exists

         CBN intervened with $389m last week, expect further injections this week

Economic News

The Good  

         OPEC deliberations in May to help prop up oil prices

         Cocoa prices on the rise, trading at $1,866/mt  

The Bad 

• Budget delay likely to derail economic recovery targets

 Power Generation analysis & Impact   

         May 6th: On grid power output was 3578MWh/hour (up 417MWh/h)

         Total Power constraints: 3569MW due to gas, line and high frequency constraints

         Estimated loss: N1.893bn (annualised at N690.9bn /$1.73bn)

         Egbin reporting higher gas constraints weighing on electricity generation

Domestic Commodity Prices Movement 


Burning Economic Issues  

         Beans (Oloyin) recorded the highest price increase of 37.5%

         Relative unrest in the north-east cutting supply to south-west

         Market analysts anticipate supply to revert to normal

         Garri shortage led to its price increase

         Price of palm oil has recovered, expected to trickle down to garri

         Maize, tomatoes and flour remain relatively constant

 Stock Market  

         NSE ASI 0.7% to 26,419.17 pts
         Positive market sentiment supporting price rally based on corporate earnings
         Mainly in the banking sector

Oil prices 

         Brent crude by 2.11% to $49.4pb
         Saudi Arabia anticipates an extension in the output cut deal beyond 2017
         Rally in the market despite waning Chinese demand in April
         China’s crude imports eased by 9% to 8.37mbpd
         YoY comparisons show China crude imports up 5%

Oil markets today



Outlook – Oil Prices    

         Oil prices might be reaching capitulation point – Goldman

         This is due to the beating prices took in the market the previous week

         Analysts doubt the anticipated impact of the OPEC cut deal extension on prices

         Stating that rising US production is a huge threat to long-run price forecast of $50pb

         Libya is also producing at its highest level since 2014 – 780,000bpd

Outlook – Agric Prices 

• Grains expected to trade positive on planting and weather conditions

• Market remains oversupplied, to trade bearish in the short-term

• Prices to be driven by supply fundamentals despite slight rally in prices

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4.      Retail Commodity Prices Remained Relatively Unchanged as Manufacturers Capitalize on Margins

5.      The Impact of CBN's Intervention on Commodity Prices Not Yet Seen

6.      The Impact of Global and Domestic Developments on the Commodity Markets

7.      Naira Recovers by 5 percent in 2 days to N495 to 1$; Oil Trades at $57pb

8.     Are The Economic Realities of 2016 to Persist in 2017?

9.      Increasing Consumer Resistance and Declining Income Is Taking Its Toll on Retail Prices

10.  Consumer Effective Demand Negatively Affected By Festive Spending

11.   Domestic Commodity Prices Have Reached Their Peak

12.  Prices of Christmas Sensitive Staple Foods Remain Sticky Downwards

13.  Domestic Commodity Prices Oblivious to a Falling Naira

14.  Domestic Food Prices May Have Reached a Plateau as Consumer Resistance Bites Harder

15.   Retailers Brace up for a Bleak Christmas

16.  The China Futures Association Signs MoU with Intnl’ Commodities & Derivatives Assn

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