JEDDAH – The global growth and geopolitical tensions across the Middle East will dictate commodity performance as energy, in addition to agricultural sectors will continue to be volatile, the National Commercial Bank said in its Saudi Economic Review for the month of January this year. In terms of livestock, Russia recently enacted a ban on US meat exports due to a contentious feed additive. As Europe recovers from its debt crisis, the manufacturing sector will trigger an upward push on industrial metals. Commodity investors closed 2012 with overall asset class prices dipping by December. Lower prices were attributed to lower global growth figures especially decelerated ones emerging from China, as well as sentiment clouded by uncertainty regarding the US fiscal cliff. The Dow Jones-UBS Commodity Index Total Return was lower by 2.61 percent in the last month. Precious metals and industrial metals fell by 3.81 percent and 0.74 percent: the latter partly due to stockpiling of refined metals in China and London Metal Exchange (LME) warehouses. Backlogs in LME warehouses, registered by Trafigura (the world's second largest metals trader following Glencore) in cities like Antwerp extend to August 2013 due to LME load-out rates which limit the daily release of inventories. As for copper, demand continued to exceed supply with the International Copper Study Group highlighting demand of 13.66 million tons outstripping that of production which amounted to 13.14 million tons during the first 8 months of 2012. Since 2000, China's consumption of global copper production has grown at an annual rate of 15 percent, with its share amounting to 40 percent. Silver, in return, surpassed gold in 2012, returning over 20 percent by December. The yellow metal opened the year at $1,536.20/ troy ounce, and closed it at $1,674.80/ troy ounce. In agriculture, figures from the United Nation's Food & Agriculture Organization (FAO) reflected sharp declines in both dairy and sugar, with global food average prices ending 7 percent lower Y/Y. FAO's agricultural market information system (AMIS) illustrates a dip in production, supply and export volumes over the 2012/2013 harvest year in total cereals. Their monthly food price indices showed a contraction in December with sugar and oils contracting the most by 16 percent and 14 percent for the same month in 2011. Further supporting this downward movement was data from the US Department of Agriculture, which says global production in Maize will likely fall by 4.5 percent over 2012/2013. Wheat appears to be bucking this trend with constrained supply—due to climatic changes—buoying prices. Moreover, the report said Saudi Arabia's international trade has rebounded on the back of elevated oil prices. Exports have recorded an increase following October's decline, posting SR13.6 billion, a 4.6 percent increase on an annual basis. These upbeat figures come alongside an 8 percent decline in tonnage compared to last year, which reflects that price levels are still supportive. As for imports, we also notice a surge of 17.1 percent M/M during November, SR45.6 billion, which translates into a whopping growth of 35 percent Y/Y. Export analysis show that plastics remain the top non-oil export by category which surpassed petrochemicals in August. Since then, however, we have been noticing a positive correlation between these two categories. A slight dip was recorded in October which regained traction and continued to spike. In November, plastics, which make up almost 39 percent of all exports, registered a 17.7 percent increase Y/Y, followed by chemical products constituting close to 36 percent which rose by 5.7 percent Y/Y. China remains the crucial trading partner and it appears that the slight recovery in its manufacturing activity has left its imprints on the trade balance sheet. Saudi Arabia allocated a sizable 18 percent of its non-oil exports to China alone, which in November brought a 40 percent increase Y/Y to SR2.5 billion, the highest figure yet seen in 2012. Singapore comes at a distant second, receiving 8.5 percent of non-oil exports. On an annual basis, Singapore reduced its demand by 9.8 percent in value terms, allocating SAR1.2 billion worth of Saudi exports. UAE, on the other hand is continuing a downward trend; a summing up SR95 million, which shrank the Y/Y figures by 19.3 percent. Saudi imports leaped upwards again after a dampened movement last month. Most imports consisted of machinery equipment and transport equipment worth SR11.9 billion and SR9.6 billion respectively, mainly originating from the US, Germany and Asian countries. More than a quarter of imports are machinery equipment which soared by 28.9 percent Y/Y. 21 percent of imports are transport equipment which made a hefty 65.9 percent Y/Y upturn. Base metals, imports jumped by 22.4 percent annually, indicative of growing manufacturing activity. Imports by origin show a decline in Chinese imports down to SR5.5 billion after it remained flat for the past two months at SR6.5 billion. US imports, however, lost the momentum which they gained back in July to remain stable at SR6.5 billion. German imports regained third place, after it was topped by Japan and South Korea the past two months by importing SR3.6 billion worth of goods. Newly opened Letters of Credit (LCs) in November increased as orders for motor vehicles jumped by 67 percent Y/ Y, while foodstuffs posted a 220 percent increase over the same period. Machinery, however, posted a decline of 16 percent Y/Y. meanwhile, settled LCs show a 106 percent increase over November of last year in foodstuffs, largely attributed to food grains, and marginally offset by sugar, tea and coffee. Building materials rose a 7 percent Y/Y, while motor vehicles orders were boosted by 89.7 percent Y/Y. — SG
