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

Proshare

Thursday, April 13, 2017/ 6.28 PM FDC

Inflation numbers were released today and there was a unified decline in both core and food inflation in spite of an increase in monthly inflation. Base year effects remain a major contributing factor to the slowing inflationary pace.

 
The CBN continued its FX intervention this week, with $350m and $31m in the forwards and spot markets respectively. This fuelled an appreciation in the naira to N400/$ before falling to N407/$, posing the question of how much more the CBN has to intervene to stabilize the naira.

We are yet to see the impact of the CBN’s intervention on commodity prices as manufacturers await more clarity and sustainability in the market. Also these manufacturers have to sell off old inventory before FX cost advantages at the new rates can be passed on to consumers. 

The FDC Think Tank summarizes the impact of global and domestic developments on the commodity markets.

Burning Economic Issues

  • March inflation numbers expected this morning
  • CBN intervenes with $350m forwards for tradeables and $31m to BDCs
  • Naira appreciates to N400/$ before falling to N407/$
  • Brent Crude declines slightly but still trading above $55pb
  • OPEC production shrinks by 0.48% to 31.93mbpd
  • Tariff on imported tomato concentrate up to 50%
  • Diesel trading higher at an average of N205/ltr  

Economic News  

The Good   

  • High oil price environment will increase revenue  

The Bad

  •        Diesel prices are up 7.9%
  •     Power output down after one-day recovery   

Power Generation analysis & Impact

April 11th: On grid power output was 2950MWh/hour (down 254MWh/h)  

  •  Total Power constraints: 2,654MW, attributed to gas and high frequency constraints• Estimated loss: N1.274bn (annualised at N465.01bn /$1.16bn)
  • Shiroro, Olorunsogo 1, Odukpani and Omoku have restored turbine functionality
  • Diesel trading higher at an average of N205/ltr




Domestic Commodity Prices Movement




Stock Market



Oil prices 

 

  • Brent crude by 0.85% to $55.75pb

• Despite massive stockpile draw in the US

• EIA reports a stock draw of 2.17m barrels

• US production increased by 360,000 barrels

• OPEC cut production by 0.48% in March

• Production currently at 31.93mbpd   

 

Oil markets today   

 

 


 

Outlook – oil prices

 

  • Markets expected to rally post EIA report
  • Attributed to Saudi Arabia’s support for an output cut extension
  • Increased geopolitical tensions in high producing regions to support oil price rally

 
Outlook – agric prices

Grains  
 

  • USDA monthly report to underpin relatively bearish trend in the grains market

Soft

  Sugar

  • Weather conditions in South America to support price

 Cocoa

  •  Supply fundamentals to weigh on prices


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6.      Domestic Commodity Prices Have Reached Their Peak

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8.     Domestic Commodity Prices Oblivious to a Falling Naira

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