Posted on

Soybean – The panic has calmed down

Price

Brazilian soybean have been quoted in China at a $94 premium a tonne over July Chicago futures. In comparison, it reached in April a $160 premium, after the threat to set a tariff on US cargoes. Usually, the premium reaches about $50-60 a tonne at this period of the year.

The price for Brazilian soybean is expected to drop as the government has announced all-time record harvest of more than 119 million tonnes. Moreover, the current high price for Brazilian soybean has slowed down the Chinese demand. However, some traders declared that Chinese importers have booked 20 cargoes for a delivery in August last week.

Céleres, which is active in consultancy in Brazil, estimates that overseas sales of soybean will increase by 2 million tonnes in 2018, to reach an annual total exports of 72 million tonnes.

Price in USD/bushel

http://www.macrotrends.net/2531/soybean-prices-historical-chart-data

Pork’s demand is declining in China

According to Reuters, China will reduce its soybean imports for the first time in 15 years in 2018/19. The agriculture ministry has indeed noticed a dropping demand for hog which lead to a decreasing demand for animal feed. Hog prices in China registered one of the sharpest ever declines in the first quarter and are below average production cost. China’s April soybean imports fell to 6.9 million tonnes, a decline of 13.7% from a year ago.

“Most soybean plants in China are now overstocked with meal and oil,” said a trader in Beijing.

Forward curve – price per contrat (100 short tons (~91 metric tons))

http://marketqview.com/forwardcurvechart.php?ID=74&TYPE=Price

http://marketqview.com/forwardcurvechart.php?ID=74&TYPE=Price

The forward curve has changed compared to our last bulletin. The inversed shape from August to November has turned into a carry. It can be explained by the all-time record harvest of soybean in Brazil announced by the South American country government. It obviously increases the supply so the market has to carry the storage costs of soybean producers.

Crush spread (in cents per bushel)

https://seekingalpha.com/article/4170072-soybean-crush-spread-telling-us-demand-strong

The crush spread shows us how much money we can earn by crushing soybeans into soybean meal and soybean oil. The crush spread has these days reached its higher point since 2013. This represents a bullish factor for the price of oilseed. This changes affect also companies like Bunge, its stock has raised from $63.87 per share in November 2017 to over the $70 level. The same move has happened to ADM stock, from lows of $38.59 in November 2017 to around the $44 level.

Moreover, Bunge’s CEO and ADM’s CFO said that the severe drought in Argentina causes this increasing crushing margin and that their companies were profiting from it since they own many crushing plants.

News

  • ADM recently bought a grain elevator in Manilla in Iowa.  This purchase increase the storage capacity of the company by 2.3 million bushels, whose represents 1.5 m of bunker storage and 775.000 of upright storage. The infrastructure can also receive 32.000 bushels of soybean per hour.
  • Some delays are occurring in China on discharging vessels and soybean are stored on a longer term basis until tests for GM material are concluded. China government keeps reporting finding seed-treated soybeans in shipments, but have not stopped trade due to this presence thus far. It could affect soybean imports if the government decided to react and set up some severe regulations on GM products.
  • The Taiwanese Food and Drug Administration is currently drafting implementation regulations on a law set in 2014 on GMO food labelling. It impacts all soy products except soybean oil. This decision could slow down the demand for bulk soybeans coming from United States.
  • In Japan, the U.S. soybean industry has seen trade perturbations due to detections of chemical residues that exceed the country’s tolerances. As U.S. soybean farmers use new herbicide mixes to eliminate weeds, there is a need to monitor those chemicals and the maximum residue level policies in export markets.

Blockchain

HSBC has made their first trade finance transaction integrating blockchain technology. This trade was conducted for a cargo of soybeans shipped from Argentina to Malaysia, involving Cargill Geneva, ING, and HSBC themselves, using a Corda blockchain developed by the R3 consortium.

HSBC’s global head of innovation, Vivek Ramachandran, said that “the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous.” He added that it is an inflection point for how trade is conducted.

The trade, instead of usually taking five to ten days for the exchange of all the documents, has here been made in only 24 hours. Moreover, HSBC said that they consider that blockchain could help reducing costs by 31%.

Video – HSBC’s blockchain engagement

https://twitter.com/HSBC/status/995778209416392704?s=20

Sources

http://www.businesstimes.com.sg/energy-commodities/faltering-chinese-soybean-demand-dents-brazils-chances-of-trade-war-bonanza

http://marketqview.com/forwardcurvechart.php?ID=74&TYPE=Price

http://agriculturewire.com/soy-checkoff-keeps-tabs-on-transportation-issues/

http://www.businessinsider.fr/us/hsbc-ing-blockchain-trade-finance-cargill-soybeans-2018-5

https://www.r3.com/

http://www.macrotrends.net/2531/soybean-prices-historical-chart-data

https://seekingalpha.com/article/4170072-soybean-crush-spread-telling-us-demand-strong

Posted on

Bulletin 3 – Aluminum

Aluminum Futures Historical Prices

Source: investing.com

In our first bulletin, aluminium prices had increased significantly to skyrocket at 2,644 USD/t at the beginning of April when the initial sanctions were put into place. In comparison to our last bulletins, aluminium prices have slightly increased reaching (2.333,25 USD/t, as of 16thMay). The reasons for this increase after the sanctions were postponed to October is the reverse cancellations of orders at the Malaysian port of Port Klang earlier this week. The LME registered back 138’650 tonnes at the same location. The level of price is trying to find its mark since the report of the US sanctions against Russian companies to the 23rdOctober 2018.

Forward Curve Primary Aluminum LME

Bloomberg (2018) Bloomberg Professional [Online]. Available at: Subscription Service (Accessed: 16th March 2018)

Like our second bulletin, the forward curve for aluminium as of the 16th Mai on the LME begin by a backwardation between around 06/2018 to 09/2021. The market is in backwardation because traders expect to experience an overproduction outside the United-States. This overproduction is due to the sanction against Rusal and the US threats of tariffs that might touch the EU in June 2018. Then it changes into a supercontango beginning 2022. We still have an artificial physical shortage as trader keep the metal in their warehouses. Traders are long physical and short future. Their goal is to take advantage of the supercontango.

Forward curve

Source: lme

Rusal:

The impact of the US sanctions over the companies are not measurable yet. Rusal experienced an excellent year in 2017 and its result for the first quarter of 2018 (total revenue of 2.744 billion US dollars) is comparable with the trend of 2017. The aluminium company released its first quarter result last week. The company has performed truly well with an increase of 20.4 % of its adjusted EBITDA in comparison with the overall 2017. The revenue linked to the sale of primary aluminium went up of 16.9% for the first quarter of 2018.   Nevertheless, it is true that Rusal performed slightly better during the last quarter of 2017. The US sanction hit the company truly recently and thus has had almost no impact on the P&L of the Russian company yet. Indeed, the US sanctioned the Russian company only the last week of the first quarter. During the release of its results, Rusal has tried to calm its stakeholder and the market about the impact of the US sanction and has guaranteed that the company will respect its commitment regarding its creditors, shareholders and investors. Nevertheless, Rusal admitted that at the moment nobody can measure how badly the business will be touched in the long-run.

The stock market’s reactions represents well the situation. Rusal’s share on the Hod Kong exchange has lost about 65% of its value at the announcement of the initial sanctions. Not surprisingly, the shares of Rio Tinto, the oil producer seconding Rusal in terms of production, has seen its share increasing. The share price of Rusal is floating around 2.00 HKD and we do not see it regaining strength in the upcoming future as no solution to the sanctions has been found yet, and the company has just received some breathing space.

Source: Bloomberg

Source: Bloomberg

TRUMP VS Tusk and all his European friends

On Wednesday 16thof May, there was a European summit in Sofia where all the main leaders of European countries met. During that summit, the different leaders wanted to show their unity regarding the threat of the American tariffs for the aluminium and steel. The European Union is exempted of the tariffs until the 1stJune 2018. The Union also discussed extensively about their willingness to respect their commitments with Iran and the nuclear deal.

Tusk during the summit:

“The EU and U.S. are friends and partners. Therefore U.S. tariffs cannot be justified on the basis of national security. It is absurd to even think that the EU could be a threat to the United States.” EU willing to discuss cutting trade barriers with U.S.: MerkelIn bitter comments, Tusk said Trump has rid Europe of “all illusions” with the trade dispute and by pulling out of an international nuclear deal with Iran.

“Looking at the latest decisions of President Trump someone could even think: with friends like that who needs enemies. But frankly speaking, Europe should be grateful to President Trump. Because thanks to him we have got rid of all illusions. He has made us realise that if you need a helping hand, you will find one at the end of your arm,”

Video

https://www.reuters.com/article/us-usa-trade-eu/eu-heads-discuss-bold-or-fold-strategy-toward-trump-tariffs-idUSKCN1IH1VD

Sources

https://aluminiuminsider.com/rusal-pre-sanction-q1-recurring-profit-jumped-22-4-to-us531-mm/

https://www.lme.com/en-GB/Metals/Non-ferrous/Aluminium#tabIndex=0

http://investing.com

https://aluminiuminsider.com

Posted on

Gasoline and Diesel Bulletin n°3

 

Prices are per gallon

As we can see in the both latter graphs, the seasonality is the main explanation of the curve which remain the same every year. In fact, during the beginning of the year the gasoline market structure is systematically on contango, which indicates the traders to stock, and then comes the “harvest” which represents the moment when the gasoline supply is more important and makes decrease the price. We also found out that the quality of gasoline during the summer is more exigent and more expensive because it requires “carry a lower Reid Vapor Pressure (RVP), a common measure of the volatility of gasoline.” (Reuters, March 2018)

Prices are per metric ton

On contrary the diesel curve is not annually seasonal as the gasoline. If we compare the forward curves of the last year with this one in course, we can see that the 2017 curve it is on contango but this year the forward curve is on backwardation. In our opinion, it could be related to the declining diesel promotion as motor companies like Toyota, for example, which is planning to cut diesel vehicles production and European countries which are decreasing and taxing their diesel consumption and demand.

Diesel and Gasoline prices are directly correlated.

In this graph we can see how the gasoline prices are compounded and the evolution during the last five years. As we see the prices declined from 2015 and it is mainly due to the crude oil price that dramatically decreased because of the opposition on the market between the US with their shale oil and the OPEC with its conventional oil. As the crude oil price is correlated with the gasoline price, this latter has also been impacted.

Here are the gasoline and diesel price components in details

Gasoline and blockchain

On April 2, it was announced that China has successfully used blockchain technology for a shipment of gasoline from China to Singapore. Sinochem made a deal with other traders, including Louis Dreyfus and ING. It was the first time that blockchain applications have been applied to all participants in the commodity trading process. Sinochem stated that by using digital B/L and smart contracts, the financing and transaction costs have decreased from 20% to 30%.

Traders and Sonangol

Sonangol, the state owned company of OPEC member Angola, has put an end to the deal they had with Trafigura, who supplied them with diesel and gasoline. Although Angola is the second producer of crude oil (1.632m bbls per day) behind Nigeria (2.14m bbls per day), they only have one refinery, and must rely on suppliers to get refined products. Now, they entered into a deal with Total and Glencore, with the former delivering gasoline, and the latter Diesel.

Glencore forms energy

The company Glencore is forming an alliance with China’s Zhejiang Petroleum to trade energy products. The purpose of this alliance is to have a foot on the Chinese market to be able to import petroleum products and exchange them.

This association will be located in a free trade zone and will be located in Zhoushan Free Trade Zone in eastern Zhejiang province.

Each company will invest 1 billion yuan, (157 million dollars), with Zhejiang holding a 71 percent share and Glencore the remainder.

This alliance follows the alliance between China National Chemical Corp, known as ChemChina, and Swiss-based trader Mercuria expanded an equity tie-up, to be able to gain access to the largest markets for energy consumption. (China)

References

http://marketqview.com/forwardcurvechart.php?ID=83&TYPE=Price

https://www.platts.com/latest-news/oil/london/sonangol-ditches-trafigura-as-main-supplier-of-26915612

https://www.opengovasia.com/articles/china-completes-the-worlds-first-gasoline-shipment-using-blockchain-technology

https://www.eia.gov/petroleum/gasdiesel/

https://www.eia.gov/outlooks/steo/report/us_oil.php

http://marketqview.com/forwardcurvechart.php?ID=39&TYPE=Price

https://www.eia.gov/todayinenergy/detail.php?id=35752