LNG prices have surged but oil prices move sideways: a monthly review of Papua New Guinea’s commodity and financial markets

LNG prices have jumped sharply and the cocoa price has been volatile. Business Advantage PNG’s monthly review of Papua New Guinea commodity and financial markets.

The Export Price Index (L) and the oil price (R). Source: MYEFO

The LNG price is up 19 per cent for the month, according to Kina Securities. This equates with a rise of 3 per cent for the year. Oil prices, meanwhile, moved sideways. According to Kina, West Texas Intermediate was down 2.6 per cent for the month, but is up 12.3 per cent for the year.

According to the National Government’s Mid-year Economic and Fiscal Outlook (MYEFO), oil prices ‘have largely being affected by the decisions of the OPEC cartel and non-OPEC producers including Russia over the past 12 months.’

According to the MYEFO report, the decision by OPEC nations, towards the end of 2016, to cut production ‘in the order of 1.3 billion barrels a day in order to clear a glut that built up over the preceding two years’, was also significant.

‘Russia (an-OPEC leader) played an important role in getting this deal through, by offering to cut its output by 300,000 barrels per day.

‘Growing tensions between the US and China pose a risk to supply.’

‘Prices kicked higher in the second quarter driven by geopolitical tensions and realisation that OPEC members have cut beyond agreed requirements set in 2016 by 52.0 per cent.’

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The report says recent developments, including trade sanctions imposed by the US on Iran, continued outages in Venezuela and Libya, and disruptions to oil production in North America, will determine the future price.

‘These are likely to play out over the second half of this year nullifying the production increases promised by OPEC.

‘Furthermore, growing tensions between the US and China pose a risk to supply from the US if this ends up blocking trade between the two nations and their allies.’

The cocoa price (L) and the coffee price (R). Source: MYEFO

Cocoa

Cocoa prices have been strong, jumping 11.6 per cent in a week. The price is up by about a quarter from a year ago.

The MYEFO report says a supply squeeze ‘appears to be fading’.

‘Global palm oil production is expected to rise.’

It says that on the demand side, ‘the strengthening of the US dollar at intervals during the second quarter placed some downward pressure on cocoa prices.’

Coffee prices continued to be weak, falling 11.3 per cent over the month. They are down by a quarter from a year ago.

Palm oil prices (L) and copra prices (R). Source: MYEFO

The MYEFO report says there is ‘ample supply’ in world markets.

‘With demand stable, prices are expected to remain below the levels observed over the past two years’.

Palm oil was steady, rising 2 per cent for the month, according to Kina. But it is down by 10.7 per cent over the year.

‘Global palm oil production is expected to rise boosted by strong production in Indonesia and Malaysia,’ says the MYEFO report.

‘This is expected to keep the market well supplied, thereby moderating price pressures.’

Minerals

Gold fell by 3.3 per cent over the month and is down 8.8 per cent over the year.

The silver price was down 5.5 per cent over the month and is down 14.6 per cent over the year.

Copper weakened, falling 5 per cent over the month. It is down 18.9 per cent over the year.

‘The copper price will continue to be affected by supply concerns against slowing Chinese demand and the higher US dollar,’ the MYEFO report says.

Equities

The stock market moved sideways. The KSI Home Index (PNG-listed stocks only) was down 0.2 per cent in the month, according to Kina. But it is up 3.4 per cent for the year.

The KSI Index (which includes dual listed stocks) rose 4.7 per cent for the month and is up 0.8 per cent over the year.

The Australian All Ordinaries Index was up 0.4 per cent for the month and America’s S&P 500 was up by 0.7 per cent.

Over the month, the kina was relatively steady against all the major currencies.

According to the MYEFO report, the Trade Weighted Index (TWI) suggests the currency ‘is expected to maintain a modestly depreciating trend over the remainder of 2018.’

Half year Treasury Bills are trading at 4.73 per cent, while full year Bills are offering 8.04 per cent.

Three year inscribed stock has an interest yield of 9.52 per cent.

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