Archive pour le 01/03/2012
LME Aluminum price graph
Aluminum price is very volatile in this beginning 2012. This is due to several factors such as troubles in the actual economy as well as the euro zone debt. In fact, aluminum consumption is not stable in Europe. Moreover due to this European Union future uncertainty, China which represents one of the top aluminum exporters has adopted a cautious stance. This attitude reduced the global supply and drives the price up.
LME Aluminum forward curve
As we can see on the curve, LME aluminum is going contango. This is due to several aspects. First of all, since China is the main consumer, if we suppose that its economy will continue to grow and still be driven by investments the demand in aluminum will continue to increase.
This is due to the inventories which will continually decrease even though aluminum is not a commodity which engender fear. But the fact that copper’s inventories are decreasing and that it is a commodity that engenders fear, we could suppose that it will more and more be replaced by aluminum. These are some reasons that explain the fact that the forward price is increasing year by year.
News: Japan’s January aluminum shipments flat on year at 156,455 mt
It is certain that there is a willingness to privilege the consumption of aluminum, due to the strong demand from renewable energy, electric vehicles and automobile industry. Despite this, based on Japan Aluminum data, the amount of sheets and extrusions shipped in January 2012 stayed approximately the same of the January 2011.
The proportion varied between sheet shipments which fell 8.2% (sheet exports: down 14.7%) and extrusion shipments which have risen from 11.5%, due to new housing construction starts and the stable demand from the automotive sector.
Sheet shipments have been mainly impacted by the harsh winter which reduced the beverage can stock demand. Another important element to mention is the general decline in Japanese exports generated by the global economic uncertainty.
Nevertheless the gradual change in behavior for environmental can be showed by the extruded housing material shipments which grew up from 22.1%, heat exchanger and other extruded products for vehicles up 7.1% year on year.
98 percent of the Iron Ore production is used to make steel and in 2011 more than 45% of the global steel production was made in China. On the graph below, it is possible to see that over the last seven years the Chinese part of the global steel production has kept increasing, giving China a major influence on the price direction.
It is crucial to understand the Chinese steel demand in order to anticipate the Iron Ore price direction. In fact, as the demand is mainly driven by one country, the Iron Ore price can increase even though the global economy is in recession. A good illustration of this statement is the 2008 economic recession.
Iron Ore price fluctuation VS Copper
From these graphs it can be seen that, even though the price of other commodities such as Copper was influenced by the recession, the Iron Ore price, due to the Chinese consumption, stayed flat.
According to the Organisation for Economic Co-operation and Development (OECD), the growth of the Chinese GDP is expected to decrease from 9.3 percent in 2011 to 8.5 percent in 2012 and will then rally to 9.5 percent in 2013. The 2012 economic slow-down will be the result of a weaker world demand partially offset by increasing public spending and a cut in income taxes. Reuters, in its article “METALS-Copper falls on poor global outlook, China demand”, also reveals a poor economic outlook due to high oil prices and the funding of the Eurozone crisis.
We believe that, on a long term basis, the Iron Ore price will not be affected by this recessive economic outlook for two reasons. Firstly, according to China Iron and Steel Association (CISA), China’s steel demand for 2012 is expected to grow by 4 percent to reach 700 million tons and as we have seen during the 2008 recession, the Iron Ore price relies more on the Chinese steel consumption than on the global economy. Secondly, as we can see on the map below, China is the world’s biggest investor. Therefore, we believe its steel demand will be firm, in order to meet its development need.
The United States are one of the biggest exporters of wheat worldwide, 50% of U.S. wheat produced is exported due to the country’s possibilities of shipping.
Our first wheat newsletter will focus on each step of the supply chain from the farm to the destination port.
Wheat arrives by trucks from farms to be unloaded in local elevators. At this step, elevator operators weigh the grains and control their quality to determine the grains’ price.
Local elevators or country elevators are of big importance in the process. Often situated in small towns, they offer a place where farmers can either sell or store their grains. Some large exporting companies even decide to own local elevators as they consider them to be a crucial step in the supply export chain.
After being shipped from local elevators, wheat arrives in huge storage centers called terminal elevator. As indicated by the name, terminal elevators are the final step where grains are stored before exportation. One feature of terminal elevators is that they are used as distribution facilities because they are strategically located. So in order to serve local demand and overseas, one task of such elevators is to handle transportation through both barge and rail.
There are three main export ports in the U.S. The biggest ones are those of the Gulf of Mexico which handle nearly 50% of total wheat export movements (U.S. Wheat Association, 2010) followed by the Pacific ports and finally shipment via the Great Lake region and St Lawrence seaway.
Export patterns depend on various factors such as location of production, transportation costs both waterways or rail facilities, and location of foreign demand.
The Incoterms chosen for wheat are generally FOB, CIF or CF. Bulk grain is usually sold on an FOB basis. However, buyers of less-than-shipload quantities or those wishing to avoid the complications of chartering vessels may prefer to buy grain on C&F or CIF terms.
- Export Grain Terminal facility, [online] 2012. http://www.egtgrain.com/facility/ (27.02.2012)
- U.S Wheat Association publication, From Farm to Port: U.S. Wheat Information [online] 2008. http://22.214.171.124/assets/pdf/farm_to_port.pdf (27.02.2012)
- U.S. Wheat Associates, [online] 2009. http://www.uswheat.org/buyersGuide/how2buy (28.02.2012)
The Freight : Market overview
Freight has several definitions, in general terms means a good carried by a vessel or vehicle by a commercial carrier. But in commercial terms so in ours terms, it means the price charged for the transport or goods transported.
Freight and futures markets :
Freight derivatives is a financial instrument’s value that is derived on the future levels of freight rates, such as “dry bulk” carrying rates and oil tanker rates. Freight derivatives are used most often by end users such as ship owners and by suppliers such as integrated oil companies and international trading corporations to mitigate risk and hedge against price spikes in the supply chain.
As with all derivatives, market speculators, like hedge funds and individual traders, participate in both the buying and selling of these contracts providing for a new, more liquid, marketplace.
Freight derivatives now include exchange-traded futures (ETFs), swaps futures and the older “Forward Freight Agreements” (FFA), which were sold over-the-counter.
Freight derivatives are a relatively new product in the global marketplace, but the advent of clearing services has brought increased safety, and with it liquidity, into the business.
Two types of freight
Dry Freight FFA’s are an integral part of international trade allowing for the movement of goods such as Coal, Iron Ore and Steel from port A to port B. Dry freight derivatives are the most liquid of the freight markets and has seen the growth in participation from traders to owners to end-users across a wide range of dry bulk commodities. Trading in USD per day on a timecharter basis, this freight derivatives market has become a highly liquid vehicle for hedging the cost of moving goods around the world.
Wet freight is one of the large commodity markets closely linked to the core ICE markets for crude oil and refined products. Wet freight is split between crude oil and refined products and operates both East and West of Suez. Freight has become a relatively liquid derivatives market in its own right, trading in Worldscale points or USD per Metric Tonne across a number of point to point routes. Increased market volatility in Energy markets has seen increased participation by traders, owners and banks and now provides good opportunities for clients to hedge cargo movements using freight derivatives.
Top 10 world busiest ports
There is more than one place in the world claiming to be the “World’s Busiest Port”. The main reason being there is no standardized means of evaluating port performance and traffic. Over the past decade Rotterdam (top in total weight of goods shipped) and Singapore (top in volume of ships handled) have argued for the title but since 2005, the Port of Shanghai has exceeded both to become the worlds busiest with a total of 443 million tons of cargo transported.
Busiest Ports By Volume
2. Rotterdam, Netherlands
3. South Louisiana, U.S.A.
4. Shanghai, China
5. Hong Kong, China
6. Houston, U.S.A
7. Chiba, Japan
8. Nagoya, Japan
9. Ulsan, South Korea
10. Kwangyang, South Korea
ARA : Amsterdam/Roterdam/Anvers
Abbreviation for Amsterdam/Rotterdam/Antwerp. These three ports form a key oil trading area. Crude Oil from the North Sea, Africa and the Middle East is refined into oil products and distributed throughout northwest Europe and down the Rhine into central Europe.
The charterparty is a legal contract enterred between the shipowner and the charterer. Every bulk ocean transportation is governed by a charter party.
There are two types of charter party :
1) Voyage charter (in USD per MT) : The shipowner agrees to transport the goods versus a fixed price.
à Little risk but limited flexibility for the charterer
2) Time charter (in USD per day) : The shipowner agrees to rent out his vessel for a certain period of time versus a fixed rate per day. The charterer is responsible for all fuel, port and canal costs.
à Greater flexibility but more risk for the charterer, this charterparty is the easiest and the most use in freight.
Top 10 shipping company (TEU means twenty-foot equivalent unit)
It is an inexact unit of cargo capacity used to describe the capacity of container ships and container terminals. It is based on the volume of a 20-foot-long (6.1 m) intermodal container, a standard-sized metal box which can be easily transferred between different modes of transportation, such as ships, trains and trucks.
Corn is the most cultivated cereal in the world, it accounts for 40% of the world production of grains. Production is largely dependent on climatic conditions. Corn is planted between April and May and harvested between October and November. It is grown on five continents but with different processes due to climatic conditions and regulations. There are also a host of political and economic issues associated with Genetically Modified Crops (known as GMO’s). In fact, over 70% of corn and soy are genetically modified.
The first global use of corn is animal feed which represents 70% of the total production. The second use is human food in different forms and the last use is the agro industry. It is used in the production of bioethanol. This last use is becoming more in more important. The corn used for industry is used in the pharmaceutical sector for the production of drugs and antibiotics; to stationery for corrugated cardboard; to create a range of textile products and applications (in particular with the corn fiber); to make beauty products with the transformation of the corn starch. If corn is fermented, it turns into alcohol.
This commodity is traded on the CBOT as well as on the LIFFE. The summer months are the most attractive and volatile in the futures market. If corn is planted late for example, its price will increase. Its price is expressed in dollars per bushel (1 bushel = 25.4 kg according to the CBOT).
Between 2007 and 2008, the price of corn has increased by 125% due to the decrease in oil reserves. In 2008, the price declined but nonetheless, the current oil situation, makes corn is an investment opportunity. In 2011, the production was disrupted by drought but it has nevertheless increased by 4% from the year 2010.
Top producers & Top consumers
The United States is the largest producer of corn in the world. Averaging 236,041 TMT (means thousand metric tonnes) of production, the U.S. produces more than double the amount of corn that China (the world’s second largest corn producer) produces. The United States is also the largest consumer of corn in the world, with average consumption of 183,119 TMT. Since the U.S. produces more than it needs, it has enough excess corn production to have average exports of 49,079 TMT, making the United States the largest corn exporter in the world.
Figure 1 : United States (Corn)
Corn is grown throughout the United States Midwest, with concentration mostly around the states of Iowa and Illinois. There are minor growth areas along the East Coast, but the vast majority of U.S. corn is grown in the central corn belt.
Over the past five years China has produced an average corn crop of 115,586 TMT. This makes China the second largest producer of corn in the world. China is also the second largest consumer of corn in the world, averaging a yearly consumption of 112,014 TMT. China on average has exported 4,560 TMT of corn. This makes China the world’s fourth largest exporter of corn.
Corn is grown over a great portion of China, with the major growing areas located in the northeast and south central regions of the country. The province of Jilin is the largest corn producing state in China, producing 13.3 percent of Chinas total corn. The second largest corn-producing province is Shandong, which produces 12.6 percent of the nations total corn.
Brazil, with an average production of 34,179 TMT, is the third largest producer of corn in the world. Brazil is also the third largest consumer of corn in the world, consuming 35,073 TMT on average. Brazil imports 1,017 TMT ranking them as the fifteenth largest importer of corn in the world.
Figure 2 : Brazil (Corn)
Corn in Brazil is grown mostly in the eastern region of the nation. The state of Parana produces 18 percent of the nations total corn, with the state of Rio Grande Do Sul producing 13 percent of the nations total corn.
Mexico, with average production of 17,910 TMT, is the fourth largest producer of corn in the world. Mexico is also the fourth largest consumer of corn in the world, with average consumption of 22,617 TMT. Mexico imports an average of 4,806 TMT of corn, making them the fourth largest importer of corn in the world.
To some degree corn is grown throughout all of Mexico, with major production areas concentrated to the greatest extent in the southern regions of the country. The state of Jalisco leads the country in corn production, accounting for 15 percent of the total corn produced in Mexico.
Argentina, with average production of 14,860 TMT, is the fifth largest producer of corn in the world. Average corn consumption in Argentina is 5,418 TMT, placing them as the seventeenth largest consumer of corn. Argentina averages exports of 9,521 TMT of corn and. Due to its high level of exports, Argentina is the second largest exporter of corn in the world.
Corn is grown in the central region of Argentina, with the province of Buenos Aires producing 54 percent of the nations total corn supply. The state of Cordoba is the second largest producing province, accounting for 16 percent of the nations total production.
France is the sixth largest producer of corn in the world, averaging a production of 14,791 TMT. Average French corn consumption is 7,774 TMT. Due to its large production average and moderate consumption level, France is the third largest exporter of corn in the world. Average exports are 7,295 TMT.
Figure 3 : France (Corn)
In France corn is grown throughout the entire country, with the major growing areas located in the southern part of the nation. The region of Aquitaine accounts for 21 percent of the nations total corn, and the state of Midi-Pyrenees accounts for 13 percent of the nations total corn production.
India is the seventh largest producer of corn in the world, averaging 10,504 TMT of production. India, on average, consumes 10,473 TMT of corn, ranking them as the sixth largest consumer of corn in the world. India has an import average of 90 TMT of corn. India exports an average of 18 TMT of corn.
Corn in India is grown in small, inland pockets throughout the country. The state of Uttar Pradesh produces 16 percent of the total corn in India, with the state of Bihar accounting for 14 percent of India’s total corn production.
Corn world supply and demand
Table 1 : India (Corn)
Future market (CBOT)
One the CBOT corn is traded according to the following contract specs (Bouchentouf) :
- Contract Ticker Symbol : C
- Electronic Ticker : ZC
- Contract size : 5000 Bushels
- Underlying Commodity : High grade No.2 or No. 3 Yellow Corn
- Trading Hours : 9:05 a.m. to 1:00 p.m. Open Outcry, 6:30 p.m. to 6:00 a.m. Electronic (Chicago time)
- Trading Month : March, May, July, September, December
“Like other agricultural commodities, corn is subject to seasonal and cyclical factors that have a direct, and often powerful, effect on prices” (Bouchentouf). As the harvest occurs in late September/October, the price is usually going down because supplies get at maximum. The opposite situation occurs in spring as the supplies are really tight. However, other fluctuations occur during all year (Fontanills). The corn group will provide deeper analyses of the corn market in the next weeks.
Price recap – week 9
Prices on the ICE Futures U.S. exchange in New York tumbled more than 3% Thursday (21th February) as traders got wind of the news and speculated that the market would soon experience an influx of short positions, as exporters who buy physical cocoa hedge their purchases in the futures market.
The price on 1st March 2011 was 2,396 $/MT.
The curve starts with a backwardation trend after April 2012. Then it is in a sharp contango until September 2012 when the curve flattens.
News: Ivory Coast’s cocoa reform plan
After end of January, Ivory Coast, the source of more than one-third of the world’s supply, launched a series of auctions to sell a portion of its 2012-13 crop, part of the eight-month-old government’s plan to overhaul the industry and ensure a floor price for farmers. The overhaul is a condition for debt relief from the International Monetary Fund, agreed to by President Alassane Ouattara, a former IMF official.
One of the conditions for the Ivory Coast to receive economic aid to help restore the Ivory Coast to the golden years of prosperity is for a sweeping reform of the cocoa sector. After a decade of liberalization the push or permission is for a return to a regulated market that is more transparent than the old one and under new support. To help better manage the flow of the crops, an auction system is being introduced enabling farmers to pre-sell the coming year’s crop. The hedging related to this has put remarkable weight on the market right at a time when it was otherwise finding sustaining from worries that the current main crop harvest was going to end more abruptly and dry conditions were going to cut into production prospects for the mid-crop. As with the introduction of any new marketing system, there were some unsettled issues and confusion but these seem to be getting ironed out and as a result, cocoa prices have fallen under increased pressure in anticipation of the hedging of the 2012-13 harvest.
Analysts have said ageing trees and a failure to counter pests and disease could threaten Ivory Coast’s long-term cocoa production, choking off the country’s main revenue earner. The country produced a record 1.5 million tonnes of cocoa last season, more than a third of global supply.
Exporters said the government-set schedule provided an allowance for plantation-to-port transport that was barely a third of the real cost.