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1. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department
by Jörgen Kennemar No. 6 • 17 June 2010
Economic Research Department. Swedbank AB. SE-105 34 Stockholm. Phone +46-8-5859 1000.
E-mail: ek.sekr@swedbank.se www.swedbank.se
Legally responsible publisher: Cecilia Hermansson. +46-8-5859 1588.
Magnus Alvesson. +46-8-5859 3341. Jörgen Kennemar. +46-8-5859 1478.
A bifurcated economic picture
is creating major fluctuations in commodity markets
• Swedbank’s total commodity price index fell by 8.4% in dollar terms in May
compared with the preceding month. Industrial metals accounted for the
largest decline in the index despite that global industrial activity continues to
strengthen and metal inventories have begun to shrink.
• An increased risk aversion among financial investors, a stronger dollar and a
more uncertain growth outlook are pushing commodity prices lower on a
broad basis. The exception is pulp, which rose in nominal terms to its highest
level since 1996. We expect that when jitters in the financial market subside,
commodity prices will trend higher during the second half of the year to the
levels reached before the financial crisis peaked.
• Growing fiscal imbalances in OECD countries and the risk of overheating in
emerging economies will increase the need for austerity measures, however,
which could slow demand for commodities and thereby limit any price
increases in the next year from a fundamental perspective.
Swedbank Commodity Price Index, USD
Source: Swedbank
00 01 02 03 04 05 06 07 08 09 10
Index
50
100
150
200
250
300
350
400
450
500
Total index exclusive energy commodities
Total index
Food
Energy raw materials
2000=100
Swedbank’s total commodity price index fell by
8.4% in dollar terms compared with April, the
largest monthly decline since fall 2008. Because of
the stronger dollar, the decrease in euro and kronor
was limited to 2%. Strained public finances in
several European countries, with the risk of
negative consequences for financial markets and
the economy, have led to a flight from cyclical
commodities to what the market considers safer
investments such as gold and US treasury bonds.
This is a clear reversal from 2009, when the inflow
of investment capital to commodity markets rose
substantially as financial markets stabilised and
confidence returned after the severe crisis of
confidence following Lehman Brothers’ bankruptcy
in fall 2008.
The price of gold is now fluctuating around
historically high levels of just over 1 200 dollar an
ounce and long-term interest rates in the US have
fallen to the lowest levels in nearly a year. The fact
that gold is reaching new heights in nominal terms

2. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 6 • 17 June 2010
2 (4)
can be interpreted to mean that the market is trying
to protect against higher inflation, while lower long-
term interest rates indicate expectations of
continued weak growth with low inflation. The
bifurcated picture also applies to the economy, with
strong expansion in emerging economies but with
the risk of overheating, while several OECD
countries are struggling with modest growth and low
inflation. At the same time several of the latter
countries face huge budget cutbacks, which could
impede the recovery. Even rapidly growing
economies, which account for the large part of the
global increase in commodity consumption, are
being forced to slash their spending to reduce the
risk of overheating. Less expansive economic
policies have created uncertainty about global
commodity demand in the quarters immediately
ahead.
Industrial metals are the commodity group that has
been most affected by the financial turbulence and
therefore accounted for the largest price decline in
Swedbank’s commodity price index in May,
dropping by an average of 12% compared with
April. The downward price trend has continued in
June, and at the time of writing the prices of several
industrial metals were at their lowest levels since
fall 2009 measured in dollars.
Metal prices are falling despite that fundamentals
are relatively strong. Inventories of several metals,
such as copper and nickel, have dropped since
March. The inventory situation for aluminium has
improved as well, although levels remain historically
high. Lead and zinc inventories have risen on the
other hand.
Stock levels, Base Metals
Source: LME, Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10
Ton(metric)
-25000
0
25000
50000
75000
100000
125000
150000
175000
200000
225000
Ton(metric)(millions)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Copper
Zink
Lead
Nickel, right scale
Growing steel production is also an indication that
global industrial activity continues to rise. During the
first quarter steel production rose by nearly 30% on
an annual basis and thus returned to the levels
before the financial crisis in 2008. China accounts
for the majority of the increase, but steel production
grew in other parts of the world as well, which has
increased consumption of nickel and coal, the raw
materials used to manufacture steel.
Steel production
Source: Reuters EcoWin
00 01 02 03 04 05 06 07 08 09 10
Ton(metric)
75
100
125
150
175
200
225
250
275
300
2000=100
Asia
World
We expect a slight stabilisation of the financial
market during the second half of the year at the
same time that the risk appetite for commodity-
related financial assets is still growing, which is
driving up metal prices to levels we saw before the
financial crisis. The ongoing industrialisation and
urbanisation of emerging economies will create an
underlying demand for commodities for a long time
to come, even if variations arise in connection with
economic fluctuations and political decisions.
The price of crude, which weighs heavily in the
commodity price index, fell by slightly over 10% in
May, which means that oil prices are back to the
same levels as in February. Like industrial metals,
crude experienced large price fluctuations during
spring, probably due more to financial flows than
changes in the real economy. The other major
energy source, coal, generally remained steady in
May, with price levels just over 50% higher than the
same month a year earlier. We anticipate that
global oil consumption will continue to rise in 2010
after last year’s decline to just over 86 million
barrels, driven by emerging economies led by
China and India. The US, the world’s largest oil
consumer, is also expected to use more oil as its
economy improves, while fiscal constraints and a
weaker euro are limiting consumption in Europe.
Our average oil price projection of 75 dollars for this
year remains unchanged. This means that the price
at the end of the year is expected to be around 70
dollars a barrel. We expect OPEC to maintain
current production capacity despite that inventories
exceed the average for the last five years.
The long-term price decline for food products
continued in May, with the price index falling by
nearly 1%, although there are variations between
different types of foods. Grain prices, which have
been under pressure for an extended period of
time, turned higher last month, but are still 16%
lower than a year earlier. Besides excess
inventories, grain prices are under pressure from a
stronger dollar.

3. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 6 • 17 June 2010
3 (4)
Among commodities, pulp went against the stream
in May despite financial concerns and uncertainty
about the economy. On average, the price rose by
3% measured in dollars (10% in euro), which
means it has risen by about 60% from a year ago. A
supply shortage and increased Chinese demand
are driving up prices to the highest nominal levels
since 1996.
Overcapacity of aluminium and steel is
keeping prices under pressure
Despite a longstanding oversupply of aluminium,
prices have risen in line with other industrial metals.
Aluminium production is energy intensive and is
therefore especially sensitive to large swings in
energy prices. In China, the largest producer of
aluminium, a recent increase in energy fees is
expected to raise production costs. In the short term
there is a risk of slight cutbacks in production
capacity if the price of aluminium continues to fall
and if the strong demand for metals in emerging
economies in recent years subsides as economic
policies are gradually tightened. An aluminium price
under 2 000 dollars per ton is considered by many
experts to be unprofitable for high-cost countries. In
essence, however, there is a tremendous global
need for aluminium, particularly from the household
sector in Asia. By 2020 global demand is expected
to more than double, from 35.6 million tons in 2009
to 74 million tons.
A new pricing model for iron ore is now being
established. Instead of annual contracts, which
have typically been used for over 40 years, we are
now seeing a transition to quarterly contracts. This
raises the risk that iron ore prices could be more
volatile than before, which could make it harder to
predict future production costs, especially for end
users like the steel industry.
The three largest iron ore producers, which account
for around three fourths of the world’s production,
are expected to announce price increases of 23%
during the third quarter after having raised them by
65-75% during the second quarter. Iron ore prices
are being raised at the same time that steel
production is expected to reach a new record level
in 2010 equivalent to 28.5 million tons, thereby
exceeding 2006 levels. The large part of the
production increase will be outside the OECD,
however, notably in China and Russia, where it is
expected to be 78% higher than four years ago. For
the US and Europe, on the other hand, production
is projected to be 20% lower. Demand for steel is
headed upward in the engineering industry, but still
rests on shaky ground, especially in OECD
countries, where any increase in investments has
been put off due to low capacity utilisation.
The steel industry has questioned the price
increases for iron ore, especially in light of uncertain
economic conditions, with fiscal policies being
tightened in Europe at the same time that there are
signs of weak steel demand from the Chinese
construction sector and auto industry. The steel
industry is also wrestling with rising inventories, due
to which steel prises have fallen in China in recent
months, which could also spread to other parts of
the world. Since China accounts for nearly half of
global steel production, a lower production increase
for steel could have consequences for iron ore
producers as well.
Swedish commodity exports take off
Swedish exports performed better than expected
during the first quarter. A strong contributing factor
was the substantial increase in mineral exports (iron
ore and steel), which rose by no less than 30% in
volume and contributed an estimated 3 percentage
points to the total increase in goods exports of 7.6%
compared with the same point in time last year.
This is evidence that global demand for raw
materials and input goods has strengthened, which
benefits Swedish industry.
Jörgen Kennemar

4. Energy & Commodities
Monthly newsletter from Swedbank’s Economic Research Department, continued
No. 6 • 17 June 2010
4 (4)
Swedbank Commodity Index - US$ -
Basis 2000 = 1oo 11-06-10
3.2010 4.2010 5.2010
Total index 264,6 287,2 263,2
Per cent change month ago 5,3 8,5 -8,4
Per cent change year ago 60,7 63,8 33,3
Total index exclusive energy 223,3 254,9 242,6
Per cent change month ago 3,3 14,2 -4,8
Per cent change year ago 42,2 53,8 39,2
Food, tropical beverages 208,1 206,4 204,5
Per cent change month ago -4,6 -0,8 -0,9
Per cent change year ago 14,0 7,4 -2,5
Cereals 185,6 178,7 180,8
Per cent change month ago -1,1 -3,7 1,2
Per cent change year ago -7,0 -10,2 -15,7
Tropical beverages and tobacco 225,6 222,2 219,8
Per cent change month ago -7,3 -1,5 -1,1
Per cent change year ago 24,7 18,6 8,8
Coffee 125,3 126,9 128,2
Per cent change month ago 1,5 1,3 1,0
Per cent change year ago 18,3 13,7 4,1
Oilseeds and oil 184,9 190,4 186,9
Per cent change month ago 0,6 3,0 -1,8
Per cent change year ago 5,7 -3,9 -16,4
Industrial raw materials 227,7 268,9 253,6
Per cent change month ago 5,6 18,1 -5,7
Per cent change year ago 52,2 70,1 54,6
Agricultural raw materials 164,3 169,9 163,9
Per cent change month ago 4,2 3,4 -3,5
Per cent change year ago 57,2 58,5 46,3
Cotton 81,3 81,5 81,4
Per cent change month ago 9,1 0,2 -0,1
Per cent change year ago 88,6 65,7 41,3
Softwood 140,8 146,2 145,0
Per cent change month ago 3,2 3,8 -0,8
Per cent change year ago 36,6 42,4 37,4
Woodpulp 877,7 917,2 945,8
Per cent change month ago 4,5 4,5 3,1
Per cent change year ago 51,7 58,5 61,6
Non-ferrous metals 239,8 253,2 222,4
Per cent change month ago 9,1 5,6 -12,2
Per cent change year ago 86,8 75,2 46,5
Copper 7462,4 7744,4 6863,9
Per cent change month ago 9,2 3,8 -11,4
Per cent change year ago 99,1 75,8 50,1
Aluminium 2205,6 2316,4 2045,2
Per cent change month ago 7,9 5,0 -11,7
Per cent change year ago 65,2 63,0 40,2
Lead 2171,7 2264,5 1892,8
Per cent change month ago 1,9 4,3 -16,4
Per cent change year ago 75,4 63,8 31,5
Zinc 2274,7 2366,3 1977,9
Per cent change month ago 5,5 4,0 -16,4
Per cent change year ago 87,0 71,7 33,2
Nickel 22453,4 26022,8 22164,3
Per cent change month ago 19,0 15,9 -14,8
Per cent change year ago 131,6 133,2 75,3
Iron ore, steel scrap 355,5 566,2 570,9
Per cent change month ago 1,1 59,3 0,8
Per cent change year ago 9,5 73,6 72,0
Energy raw materials 283,0 301,6 272,4
Per cent change month ago 6,0 6,6 -9,7
Per cent change year ago 68,4 67,8 31,2
Coking coal 352,1 377,9 377,4
Per cent change month ago 1,2 7,3 -0,1
Per cent change year ago 51,2 57,9 56,0
Crude oil 279,8 298,1 267,6
Per cent change month ago 6,3 6,5 -10,2
Per cent change year ago 69,5 68,4 29,8
Swedbank Commodity Index - SKr -
Basis 2000 = 1oo 11-06-10
3.2010 4.2010 5.2010
Total index 205,9 224,5 220,0
Per cent change month ago 3,9 9,0 -2,0
Per cent change year ago 34,6 43,1 32,7
Total index exclusive energy 173,8 199,2 202,8
Per cent change month ago 1,9 14,6 1,8
Per cent change year ago 19,1 34,4 38,4
Food, tropical beverages 161,9 161,3 170,9
Per cent change month ago -5,9 -0,4 6,0
Per cent change year ago -4,5 -6,2 -3,0
Cereals 144,4 139,7 151,1
Per cent change month ago -2,5 -3,3 8,2
Per cent change year ago -22,1 -21,5 -16,1
Tropical beverages and tobacco 175,6 173,7 183,7
Per cent change month ago -8,6 -1,1 5,8
Per cent change year ago 4,4 3,6 8,2
Coffee 97,5 99,2 107,2
Per cent change month ago 0,1 1,7 8,0
Per cent change year ago -0,9 -0,7 3,6
Oilseeds and oil 143,9 148,8 156,2
Per cent change month ago -0,8 3,4 5,0
Per cent change year ago -11,5 -16,0 -16,8
Industrial raw materials 177,2 210,2 212,0
Per cent change month ago 4,2 18,6 0,9
Per cent change year ago 27,5 48,6 53,8
Agricultural raw materials 127,9 132,8 137,0
Per cent change month ago 2,8 3,8 3,2
Per cent change year ago 31,7 38,5 45,6
Cotton 63,3 63,7 68,0
Per cent change month ago 7,6 0,7 6,8
Per cent change year ago 58,0 44,7 40,6
Softwood 109,6 114,3 121,2
Per cent change month ago 1,8 4,3 6,1
Per cent change year ago 14,4 24,4 36,7
Woodpulp 683,1 716,8 790,6
Per cent change month ago 3,0 4,9 10,3
Per cent change year ago 27,1 38,5 60,7
Non-ferrous metals 186,6 197,9 185,9
Per cent change month ago 7,6 6,0 -6,1
Per cent change year ago 56,4 53,1 45,8
Copper 5807,7 6052,4 5737,3
Per cent change month ago 7,7 4,2 -5,2
Per cent change year ago 66,7 53,6 49,3
Aluminium 1716,5 1810,3 1709,5
Per cent change month ago 6,4 5,5 -5,6
Per cent change year ago 38,3 42,4 39,5
Lead 1690,1 1769,8 1582,1
Per cent change month ago 0,5 4,7 -10,6
Per cent change year ago 46,9 43,1 30,8
Zinc 1770,3 1849,3 1653,3
Per cent change month ago 4,1 4,5 -10,6
Per cent change year ago 56,6 50,0 32,5
Nickel 17474,6 20337,4 18526,5
Per cent change month ago 17,3 16,4 -8,9
Per cent change year ago 94,0 103,7 74,4
Iron ore, steel scrap 276,7 442,5 477,2
Per cent change month ago -0,3 59,9 7,8
Per cent change year ago -8,3 51,6 71,1
Energy raw materials 220,2 235,7 227,7
Per cent change month ago 4,6 7,0 -3,4
Per cent change year ago 41,0 46,6 30,5
Coking coal 274,0 295,3 315,5
Per cent change month ago -0,2 7,8 6,8
Per cent change year ago 26,6 38,0 55,2
Crude oil 217,8 233,0 223,7
Per cent change month ago 4,8 7,0 -4,0
Per cent change year ago 41,9 47,1 29,2
Swedbank
Economic Research Department
SE-105 34 Stockholm, Sweden
Phone +46-8-5859 1028
ek.sekr@swedbank.se
www.swedbank.se
Legally responsible publisher
Cecilia Hermansson, +46-88-5859 1588
Magnus Alvesson, +46-8-5859 3341
Jörgen Kennemar, +46-8-5859 1478
Swedbank’s monthly Energy & Commodities newsletter is published as a service to our
customers. We believe that we have used reliable sources and methods in the preparation
of the analyses reported in this publication. However, we cannot guarantee the accuracy or
completeness of the report and cannot be held responsible for any error or omission in the
underlying material or its use. Readers are encouraged to base any (investment) decisions
on other material as well. Neither Swedbank nor its employees may be held responsible for
losses or damages, direct or indirect, owing to any errors or omissions in Swedbank’s
monthly Energy & Commodities newsletter.