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Iron Ore Bulletin N°3

Iron ore spot price

According to Metal Bulletin, the spot price for benchmark 62% fines tumbled 8.4% to $64.25 a tonne, its largest one-day percentage drop since April 12 last year.

It is the largest recorded declines in the era of spot pricing for lower and higher grades ore too.

The prices are declining for several reasons, the first one is the steel entering a bear market, and in consequence, the steel prices decrease, it means that the margin for steel mills are decreasing almost to nothing. To counter that, steel mills in China produce steel with low-grade iron ore, which is cheaper. Unfortunately, it is the first time since three year that Chinese mills report losses.

Moreover, today, china has less incentive to produces steel and the producers are offloading existing inventory in the market.

Future of iron ore

Based on a report from iron ore and steel data Analytics Company, they found out that steel mills are putting pressure on iron ore producer to decrease there price in order maintain their margin.

The steel mills are hedging their forward production profit margin because they expect higher production due to less sintering cuts from the government.

It means that with demand of steel decreasing because of the cold season, however in the first quarter 2019, the mills will increase production can maintain their profit margin by buying input at lower price.

The future contract of iron ore are down warding slopping because it reflect the steel industry future contract such as steel rebar and steel scrap

Like iron ore, that’s also been reelected in coking coal and coke futures on Monday with the most actively-traded contracts sitting at 1,289 and 2,137 yuan respectively, down from 1,321.5 and 2,170 yuan on Friday evening.

Steel futures are also under pressure with rebar and hot-rolled coil prices sitting at 3,575 and 3,397 yuan respectively, off Friday’s night session close of 3,627 and 3,465 yuan.

($1 = 6.9499 Chinese yuan)

Recommendation

We should go long, we are expecting to see the price decline due to the rise of iron ore production. Indeed, according to the Fitch Solutions Global Iron Ore Supply and Demand Outlook Report, the iron ore’s output will increase from Brazil and India from 2018 to 2027. Thanks to their new mining infrastructure.

References

Els, F. (2018). Iron ore price craters 8% | MINING.com. [online] MINING.com. Available at: http://www.mining.com/iron-ore-price-craters-8/ [Accessed 28 Nov. 2018].

Investing.com. (2018). Iron ore fines 62% Fe CFR Futures Contracts – Investing.com. [online] Available at: https://www.investing.com/commodities/iron-ore-62-cfr-contracts [Accessed 28 Nov. 2018].

Investing.com. (2018). Iron ore fines 62% Fe CFR Futures Contracts – Investing.com. [online] Available at: https://www.investing.com/commodities/iron-ore-62-cfr-contracts [Accessed 28 Nov. 2018].

Lme.com. (2018). London Metal Exchange: LME Steel Scrap. [online] Available at: https://www.lme.com/Metals/Ferrous/Steel-Scrap#tabIndex=2 [Accessed 28 Nov. 2018].

MINING.com. (2018). China iron ore hits 4-1/2-month low, steel market under pressure | MINING.com. [online] Available at: http://www.mining.com/web/china-iron-ore-hits-4-1-2-month-low-steel-market-pressure/ [Accessed 28 Nov. 2018].

Scutt, D. (2018). Iron ore is in free-fall. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/iron-ore-price-collapse-china-steel-production-profits-2018-11 [Accessed 28 Nov. 2018].

 

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Oil prices slump : USA exporting more, Russia can go lower and a potential OPEC output cut to come

Russian crude oil – Weekly bulletin #3

Price movement


As recently as the beginning of October, Brent’s barrel was trading at around $ 87 per barrel, while the forecast was 100$. Since then, the commodity has suffered a series of unprecedented losses, affected by both an overabundance of supply and a decline in demand. Oil is now estimated at nearly half of what it was two months ago, after recording its biggest drop in a day for the past three years.

The anticipated cut in supplies precipitated by US sanctions on Iranian oil has not materialized, thanks to the unexpected administration of the Trump government which granted exemptions to eight countries, including major importers, China and India. Most disturbing, this abundance of supply could account for only about 15% of the current price decline, the rest being caused by depressed demand linked to a sluggish economy.

Crude oil prices fell further today after the Energy Information Administration announced crude oil inventories for the week leading up to Nov. 23 adding 3.6 million barrels and 3.453 million barrels for the current week. This is comparable to a production of 4.9 million barrels a week earlier.

Supply and demand dynamic
Crude oil prices lost more than 1 USD/bbl in Wednesday night trade after US crude inventories rose more than expected, for the week ended Nov. 23. However, lower gasoline inventories in the United States and higher crude oil exports to the United States provided bullish support in an otherwise bearish report from the Energy Information Administration.

US crude exports jumped from 473,000 bpd to 2.44 million bpd last week, after three consecutive declines while US gasoline inventories fell 764,000 barrels around 224,55 million barrels still stored revealed the EIA data. This was contrary to analysts’ expectations regarding a construction of 141,000 barrels.

The recent fall of the market to about $60/b did not bother Russia because its budget expenditure side is based on a price of 40$ per barrel, said Putin in Moscow. Although he declared himself willing to cooperate with OPEC “if necessary”, Russia remains in a wait and see position.

Russia’s crude oil exports to India are expected to increase in the near future and could become more attractive when the United States waiver for the purchase of Iranian crude oil expires, said Vice President of the Essar Group on Wednesday, Ravi Ruia.

In October, before the lifting of sanctions was approved, Nayara’s president, B. Anand, told S&P Global Platts that the company would request additional purchases of crude oil from Iraq, Saudi Arabia , Mexico and Brazil, as well as the merger of the Urals with Russia dry.

Recommendation for the future


Saudi Energy Minister Khalid al-Falih said in Abuja, the Nigerian capital, that the OPEC / non-OPEC coalition must make a “collective decision” to balance the oil market and stabilize prices. This could include production cuts, although he was careful to point out that no proposal had yet been finalized. The coalition is preparing a meeting in Vienna on the 6 of december.

Looking at the latest forward curve, we can see a slight contango foreseen by the market and therefore, we still recommend to be long on russian crude.

Sources :
‘China’s Russian Oil Imports Hit Record High, Iran Intake Slumps’. OilPrice.com. Accessed 28 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Chinas-Russian-Oil-Imports-Hit-Record-High-Iran-Intake-Slumps.html.
‘Oil Falls On Crude Inventory Build’. OilPrice.com. Accessed 29 November 2018. https://oilprice.com/Energy/Crude-Oil/Oil-Falls-On-Crude-Inventory-Build.html.
‘Russia Isn’t Interested In Joining New OPEC-Led Oil Output Cuts’. OilPrice.com. Accessed 29 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Russia-Isnt-Interested-In-Joining-New-OPEC-led-Oil-Output-Cuts.html.
‘Saudi Arabia To Raise Oil Shipments To China’. OilPrice.com. Accessed 29 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Saudi-Arabia-To-Raise-Oil-Shipments-To-China.html.
‘Saudis Boosted Oil Exports, Pumped At Record Level In Early November’. OilPrice.com. Accessed 27 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Saudis-Boosted-Oil-Exports-Pumped-At-Record-Level-In-Early-November.html.
‘The Biggest Losers Of The Current Oil Price Slump’. OilPrice.com. Accessed 29 November 2018. https://oilprice.com/Energy/Crude-Oil/The-Biggest-Losers-Of-The-Current-Oil-Price-Slump.html.
‘Urals-Brent Price Difference’. Neste worldwide, 19 February 2015. https://www.neste.com/corporate-info/investors/market-data/urals-brent-price-difference-0.

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How the market has bean doing ? (soybean #3)

Price

Concerning the prices from those last 2 week, we can observe with the picture that represent the prices of soybean on a 1 year basis, that today the price is quite stable. It varies from USD 880 per hundred bushels to the price today which is USD 890 per hundred bushels.

It is quite a normal situation as the inventories from both biggest exporters, Brazil and USA are countering each other in the supply side. Brazil is exporting the old crop and USA the new one. It means that the supply side expect prices that are stable.

The demand is stable as Soybeans are needed over long term not for one period in time. Therefore the price is acting quite normally.

Forward curve

Two weeks later we still see the same trend regarding the upward trend, we already explain why the forward curve stay flat during the period between July and september and it is due to the seasonal pattern that we explained two weeks ago. Thus, it is without surprise that we can see the same phenomena happening at the same time of the year but one year later. The simple explanation for this is, again, the seasonal pattern that will occur every year at the same time. So basically, this forward curve is quite normal and we can see that the market is stable and well supplied.

News

Argentina replaces China as biggest U.S. soybean buyer

During the last three months Argentina become the top buyer of U.S. soybean. Almost 1.3 million metric tons of oilseed have been exported to Argentina from September 1 until 22 November.

As we already know Argentina tend to processes its own soybean in order to keep the add-value on the product. But giving the fact that China is looking for non-American soybean or soybean product, Argentina is willing to export more raw soybean and buying more from the U.S. in order to respond from the demand of China and also because Argentina suffer from a drought earlier this year.

U.S. soybean farmers struggle to find buyers amid Trump’s trade row with China

As mentioned in the previous bulletin, American farmers have been stocking a staggering amount of soybeans since their main buyer, China, has been denying their trade offer. In this situation, farmers still have to pay their bills, as one of them put it, “you can’t pay your bills with patriotism”. To remedy with that, the Trump administration has issued a $12 billion program to compensate the loss due to that trade war. Nevertheless, this still hasn’t been able to fully cover the costs of production. As of now, that costs is higher than the current cash price so the do not even have to possibility to break even.

https://www.agweb.com/article/argentinareplaces-china-as-biggest-us-soybean-buyer/

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

https://www.japantimes.co.jp/news/2018/11/28/business/u-s-farmers-silo-instead-ship-record-soybean-crop-trumps-china-trade-row-rages/

https://m.nasdaq.com/markets/soybean.aspx

 

 

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West African Crude Bulletin n°3

Ciao China,
Welcome South Korea and India!

 

PRICE MOVEMENT RECAP

 

                 

Qua Iboe (Nigeria) – Light & sweet crude (Gravity 37.6 / Sulfur 0.10 %)

                 Nemba (Angola) – Light & sweet crude (Gravity  38.7 / Sulfur 0.19 %)

 

Price of Brent crude continues to plunge greatly and has fallen to its lowest point this year. It slumped as low as $59.26 a barrel last Friday (the 23th of November). In early October, the price per barrel was at $86, and then we can notice that this plunge is more than 30%.

As a result, OPEC will react as there is an oversupply of crude. Meaning that they will take initiatives by surely cutting the supply in order to regulate the market (stabilize prices). This would imply a rebound in prices in 2019.

 

SUPPLY & DEMAND

China’s Importation of WAF crude oil will be cut in November due to the higher cost of shipments, while South Korean imports from West Africa will increase because of the US sanctions againstIran. In fact, Iranian exports are falling, pushing Asian refiners to look out for oil from much more further with longer journey times, pushing up shipping costs.

“Shipping rates for carrying West African oil on a very large crude carrier (VLCC) to China hit a nine-month high in October of more than $50 000 a day.” (Reuters)

“West African loadings to Asia will fall to about 2.33 million barrels per day (bpd) this month, equivalent to 70% of total exports from Angola, Nigeria, Republic of Congo, Ghana and Equatorial Guinea. This compares to October’s 2.52 million bpd, or 75% of total regional exports.” (Reuters)

Consequently, the demand from Asian refiners for Nigerian and Angolan crude dropped down during the October and November, due to the higher shipping costs, which made the trip unprofitable.

Let’s have a look on West African exports to major Asian buyers:

Regarding tothis table, we can identify that China will import about 1.33 million bpd of mostly Angolan crude in November, comparing to October’s record of 1.935 million bpd, while South Korea will take about 167,000 bpd of WAF crude. India’s refiners will take 567,000 bpd of WAF crude in November, up from 452,000 bpd in October. Finally Taïwan has also increased its number of cargoes by taking about 133,000 bpd in November, while only 32,000 bpd were taken in October.

“South Korea has till now typically taken only occasional West African cargoes, because it has tended to rely more heavily on Middle East or North Sea suppliers. Nevertheless it has now said it would cut Iranian purchases because of US sanctions on Iran and has sought out other suppliers, starting with a cargo of Congolese Djeno that loaded this month.” (Reuters)

Glencore, Shell, Norway’s Equinor and Chevron, among others will supply the Indian market with a combination of Nigerian and Angolan grades.

 

BRENT FUTURES CURVE

When we compare the forward curve from two weeks ago to the one from this week, we can say that it is still a contango situation and hence it is still better to store the crude since carrying costs are supported by a higher price.

Only prices $ per barrel have been adapted but did not impact the forward curve. As the overall situation is the same from two weeks ago, in the sense that prices continues to plummet, there is no significant changes concerning this last bulletin to the previous one.

 

 

 

 

 

 

 

 

Sources:

https://oilprice.com/oil-price-charts

https://www.reuters.com/article/oil-westafrica-exports/china-to-cut-w-african-oil-imports-in-november-s-korea-imports-surge-idUSL8N1XO5NI

https://www.theguardian.com/business/2018/nov/23/oil-price-falls-brent-crude-cost-barrel-oversupply-concerns

 

 

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North American crude weekly bulletin #2

Price cuts: Three men are controlling the price

During the last month we have seen OPEC losing control of the oil market as it ever had. The action of Presidents Donald Trump, Prince Mohammed Bin Salman and Vladimir Putin will determine the course of oil prices in 2019 and beyond.

While OPEC struggles to find solution, the three countries dominate the global supply. As we can see below, together they produce more oil than the remaining members of OPEC including condensates and natural gas liquids.

 

(U.S 15.2M barrels per day / Russia 12.3M barrels per day / Saudi Arabia 12.2M barrels per day)

Forward price and spread Brent-WTI curves:

We can see on the chart above that during a short term it will be still profitable to store and sell in the future as the WTI and the Brent price curve are in contango.

On the both curves, we can see a slow increase during Q1 2019, but probably due to the price/production war between U.S, Russian and Saudi Arabia the Brent curve will sooner turn in backwardation while the WTI forward curve will remain stable during a short due to U.S influence as big supplier.

The yellow curve shows the spread between the price for Brent Back month contracts and the price for WTI back month contracts.

Canadian Crude Oil.

Since mid-May heavy Canadian crude has been in a downward spiral.

A recent increase in Western Canadian production caused a glut because the production was running into limited pipeline capacity. It has caused that heavy and light Canadian production has been trade at record discounts in comparison to world oil benchmarks. The discount was, one year ago, less than USD 15.

Another issue that had an impact on Canadian oil prices is that most of the U.S. refineries that process the Canadian heavy oil have been in maintenance for the last two months.

BP Plc just restarted a crude unit as well as a coker which help prices to recover.

Although U.S. refineries are restarting, the crisis is far from done. Canada is still producing more oil than the pipelines can handle and his storage capacity has reach his maximum.

BP has recently signed a multi-year contract with rail companies in order to load Western Canadian oil and increase volume of imports. In October, they reached an average of 274’000 barrels a day and they are looking to double this volume by next year.

As Heavy Western Canadian Select’s discount to WTI futures narrowed to USD 39.25 a barrel.

 Shale oil production:

According to the department of energy, the U.S. oil production will reach 12 million barrels a day, 6 months sooner than expected. Shale oil producers from the Texas oil patch have added the past 12 months a volume equivalent to the entire output of Nigeria.

This is why some suppliers from the Permian region want that the U.S government add three more pipelines. With those new pipelines, the suppliers from this region will try to produce 2 million of barrels per day.

Recommendation

Due to this instability/price war in the oil market, it will be judicious if we want to sell future contract to not sell future contract after Q1 ending in 2019. Having no real information about how U.S and Saudia Arabia will act those last month (cut a little bit the supply, continue to supply or increase ) people have better time to ensure themselves from a loss of money.

Appendix:

https://www.bloomberg.com/news/articles/2018-11-21/opec-s-worst-nightmare-the-permian-is-about-to-pump-a-lot-more

https://www.bloomberg.com/news/articles/2018-11-16/canadian-crude-rallies-as-u-s-demand-and-rail-shipments-rise

https://www.bloomberg.com/opinion/articles/2018-11-18/bin-salman-trump-and-putin-control-the-oil-price-now

https://www.bloomberg.com/news/articles/2018-11-22/oil-holds-gain-as-u-s-fuel-inventory-drop-counters-trump-tweet

https://www.bloomberg.com/news/articles/2018-11-20/canadian-oil-patch-plunged-into-crisis-by-historic-price-crash

 

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Copper Weekly Bulletin – N°2

G20 as the last hope for trade war resolution and global economic growth

The copper three-month future price rose for the fifth straight session on Monday reaching $6,259 a tonne and having gained 2.5 percent since last week. This was due to the prospect of a resolution to the US-China trade war, with President Trump announcing that China was willing to take steps to resolve the issue.

However, the hope of a resolution fell short at the APEC summit last weekend, where for the first time, US and China fail to agree on a communique. Divisions were evident at the summit and Vice President Mike Pence even threatened China that they will double the tariffs if they do not accept US demands. Therefore, the prices fell down to $6,240 on Tuesday and to $6,239 on Wednesday. It dropped again on Thursday to $6,217 following another clash between the two world’s biggest economies at a WTO meeting on Wednesday, however the price is supported by a weakening dollar therefore making it cheaper to buy dollar-backed commodities

In general, the price of copper as well as the other metals traded in a narrow range the whole week, but the price outlook could improve if the sigh of a potential resolution in the trade conflict rise with the G20 summit at the end of the month.

Since last bulletin, the premium price for cash over 3-month dropped from $31 to $18.50 on Friday, and it rose again to $21.50 which still points toward tight market.

Negative sentiment of the market has a huge impact on the copper price.

Strengthening supply

According to mining.com, the supply is quite strong at the moment and is expected to be even stronger thanks to a 3% increase expectation of Chile. This 3% increase expectation is due to an increase of 54,100 tonnes in the first three quarters of 2018, a 13% year-to-date growth over the same period of 2017. It makes experts confident that Chile is going to continue with the current pattern. As a reminder, Chile is the biggest world’s exporter and account alone for more than 30% of total world’s supply.

Moreover, it appears that this trend is not only happening in Chile but also in other countries such as Zambia for example. According to Kitco, Zambia has currently done 10% better than last year during the same period. It is thanks to the biggest mining companies improving machines to extract copper.

As the global supply of copper is strengthen, there price of copper is supposed to decrease in a near future.

COPPER SUPPLY: Headline inventories of copper in LME-registered warehouses MCUSTX-TOTAL fell by 9,400 tonnes to 151,625 tonnes, nearing last month’s 10-year low of 136,675. tonnes.

Since two weeks ago, the level of the open tonnage LME copper stock (tradable warrant) remain pretty stable.

Such a stability means that for the moment, copper supply and demand meet pretty well.

Backwardation in the future

The forward curve is in backwardation, as we can see on the table below, the current cash price was increasing until a few days ago (12.11.18 – 20.11.18) before decreasing these last two days. The reason of this backwardation is still due to the negative sentiment toward the slowing chinese economic growth as well as the trade war. People prefer to trade to go short and sell at the cash price rather than at the future price which is the reason why the LME still has a premium of $21.50 cash over the three-month.

 

Data valid for 21 november 2018

Source:

https://www.kitco.com/news/2018-11-21/Zambia-apos-s-copper-output-up-10-4-year-year-in-September.html

https://www.reuters.com/article/global-metals/metals-copper-edges-higher-ahead-of-g20-summit-idUSL4N1XU3ZK

http://www.infomine.com/investment/warehouse-levels/copper/1-month/

http://www.mining.com/copper-output-spike-worlds-top-producer-chile/

 

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Bulletin 2 – “The rally of LNG and NG”

Main hubs of natural gas

Let us starting with an introduction about the meaning of a gas hub. A gas hub is a central infrastructure networks for natural gas when transported through pipelines and for liquified natural gas when transported through vessel. This network is used as central pricing point for the stakeholders.

Henry Hub is the US benchmark for natural gas and considered as the biggest natural gas hub. The second one situated in Europe is the Britain’s National Balancing Point (NBP) used as an the main indicator for Europe wholesale gas market. Finaly the Dutch Title Transfer Facility (TFF) which is mainly due to its huge Groningen onshore gas field and being the center of a large pipeline network. EAX hub stand for East African Commodity Exchange.


https://www.erce.energy/graph/uk-natural-gas-futures-curve

A Therm (thm) equal 100’000 British thermal units (Btu).

The graph above is taken from the National Balancing Point introduced before. It represents the future price from January 2019 to May 2025 taken at four different points in time. There are 3 trends that can be analysed. The first one being the seasonality which we have already seen last week, then the global trend in time and finally the variation of expectation from May compared to the three other months.

We can observe a global trend over time which is price decreasing. This fact is mainly due to the new American technology to extract gas named shale gas. The so called shale gas revolution allowed United States to change from gas importer in 2007 to an exporter in 2017 and expected to become a global LNG player. However, the decrease of price is quite low for the main reason that the Asian demand for the next 5 years is expected to grow for its low C02 gas emission and replace coal energy still largely used in China.

Finally, the variation of expectation from May compared to the three other months, from our point of view is due to the announcement of China to try to stop using coal and consume more natural gas as mentioned before.

Price movement, demand & supply analysis

From November 1st, 2018 until Friday November 16th, 2018, the price of natural gas has raised by 31%. The three reasons that demonstrate this increase are the winter, the current low inventories of this commodity and the drop in oil’s price. Indeed, the cold season is coming earlier and is colder. This season increases the demand of natural gas and LNG to heat homes.
The price of oil has dropped by 14% for the month to date (November 1st to November 16th, 2018). The reason is that companies which produce oil, LNG or NG are switching their production to natural gas in order to meet the huge and growing demand of this commodity. As a result, this switching is influencing the increase of 31% of natural gas.
On the supply side, US Energy Information Administration reported that total stocks stand at 3,247 trillion cubic feet, which is 528 billion cubic feet lower than the prior year at the same period. Inventories are facing a storage deficit which makes the price subject to be greater than previous years.

As a whole, the demand and supply side effects seen above influenced the price movement of NG and LNG. Until the end of the year, the demand will push the price higher, in a quickly or gradually way. This could be seen also on the future contracts which show an increase until the end of the cold season (between February and March 2019).

We recommend in a short period to be prepared to sell LNG and NG because the spot price will certainly show a backwardation against the forward price.
Until the end of the winter (long-term period), we also recommend to sell LNG and NG, knowing that the houses would be frozen by the cold, the spot price will be higher than the forward price.

Anecdote

Storage of natural gas (in US):

Depleted natural reservoir (about 80%): Old reservoirs of gas that are empty: reused as a storage facility.

Salt caverns (about 10%):  Highly reliable because of the salt is very strong and retain gas well. Capital intensive.

Aquifers storage caverns (about 10%): Usually once a year because it is very capital intensive and to control.These types of storage facilities are usually used only in areas where there are no nearby depleted reservoirs. In normal times, facilities are operated with a one winter withdrawal period during high peaks. May be used to meet peak load requirements as well during other times (summer).

Total underground storage in US: about 10mio Cubic Feet

Above ground: Gas tanks: Very short term but easy to fill up and take from. In the pipelines: line packing (inject higher quantity through the pipelines) LNG: 1/600th of normal gas space, more flexible than pipelines (can change suppliers and/or sellers). Capital intensive ($billions).

Capacity in Million Cubic Feet

Sources

Caverns: Home. (2018). Underground Natural Gas Storage. [online] Available at: http://www.energyinfrastructure.org/energy-101/natural-gas-storage [Accessed  Nov. 2018].

Eia.gov. (2018). U.S. Underground Natural Gas Storage Capacity. [online] Available at: https://www.eia.gov/dnav/ng/ng_stor_cap_dcu_nus_a.htm [Accessed Nov. 2018].

SAEFOND, Myra P, 2018. “Natural gas will soon find more fuel to feed its rally”. Market Watch (online). November 18th, 2018. (Consulted on November 20th, 2018). Available to the following URL: https://www.marketwatch.com/story/natural-gas-will-soon-find-more-fuel-to-feed-its-rally-2018-11-16?siteid=rss&rss=1

Market Watch’s forward prices, 2018. “Recent contracts”. Market Watch (online). November 18th, 2018. (Consulted on November 20th, 2018). Available to the following URL: https://www.marketwatch.com/investing/future/ngf19

Market Watch’s Natural gas spot prices, 2018. “Natural gas (Henry Hub) in USD – Historical prices”. Market Watch (online). November 18th, 2018. (Consulted on November 20th, 2018). Available to the following URL: https://markets.businessinsider.com/commodities/historical-prices/natural-gas-price/usd/1.11.2018_19.11.2018

SAEFOND, Myra P, 2018. “Natural-gas futures drop further with weekly U.S. supply up 39 billion cubic feet”. Market Watch (online). November 15th, 2018. (Consulted on November 20th, 2018). Available to the following URL: https://www.marketwatch.com/story/natural-gas-futures-drop-further-with-weekly-us-supply-up-39-billion-cubic-feet-2018-11-15

HOGUE, Tom, 2018. “Q&A: What is a gas trading hub, and how are they established?”. Reuters (online). December 29th, 2017. (Consulted on November 20th, 2018). Available to the following URL: https://www.reuters.com/article/us-china-gas-exchange-q-a/qa-what-is-a-gas-trading-hub-and-how-are-they-established-idUSKBN1EN0I1

ERCE, 2018. “UK Natural Gas Futures Curve”. ERCE (online). (Consulted on November 20th, 2018). Available to the following URL: https://www.erce.energy/graph/uk-natural-gas-futures-curve

ICIS, 2018. Comparing natural gas prices as Europe and Asia compete for US LNG”. ERCE (online). (Consulted on November 20th, 2018). Available to the following URL: https://s3-eu-west-1.amazonaws.com/cjp-rbi-icis/wp-content/uploads/sites/7/2018/09/03034112/comparing-natural-gas-prices-as-europe-and-asia-compete-for-us-lng.pdf

USAID, 2018. Futures market a boosts for the EAX”. USAID (online). (Consulted on November 20th, 2018). Available to the following URL: https://www.eatradehub.org/futures_market_a_boost_for_the_eax

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Coffee Bulletin N2 – Coffee takes a BREAK

In the 1st Bulletin, when looking on the graph of ICO (International Coffee Organization) composite indicator price of green coffee beans of all major origins and type, we can notice a decrease that started in 2nd of November (price of 116 cents/lb) continues to the 2nd Bulletin until 13th November (price of 108 cents/lb) and then stabilized from the 17th of November (109 USD cents/lb).

1st Bulletin

2nd Bulletin

 

 

Therefore there is a decrease in the price which can be explained by the following:

The Brazilian currency real had strengthened comparing to the USD which meant the traders demand decreased while the supply level stayed stable and this sent the prices down.
In addition, According to the ICE the number of coffee future contracts this year so far has declined from 287,732 to 247,618[1] which confirms us the demand had decreased. (Explained in the 2 graphs below)

However, for this second bulletin, there was a smaller variation in the price comparing to the first bulletin. we can assume that the presidential election in the leading coffee export country, Brazil, still has a lower impact on ICO composite price indicator comparing to the 1st bulletin. There was a slight decrease in the price of 8 cents overall which is about 9% (116-108/116). We assume that enough time has passed after the recent elections in the Brazil, the political situation in Brazil stabilized and this can explain the decrease in volatility of the price of coffee beans there is slight price decrease as previously mentioned.

 

Forward curve

As we can notice in the forwards curve for Arabica and Robusta presented below, the correlation between these two graphs continues to be similar compared to our first bulletin.

The coffee market continues to be a Carry market – the cash price today is lower than the futures prices in a stable trend which we assume it is due to lack of impactful news and events.

There was a slight decrease in the spot prices for Arabica beans that are represented by the first point in the forward curve .
There was a steeper decrease in the spot prices for Robusta beans that are represented by the first point in the forward curve .

 

 

 

 

Coffee Terminal Markets Explanation:
There are two major terminal markets for the coffee commodity which are the following:

  1. The most active terminal market is without doubt for the Arabica coffee as it is the most exported worldwide (around 70%) represented by the “US Coffee C” contract and traded on the ICE
  2. Robusta coffee contracts are traded on the “London-based London International Financial Futures and Options Exchange known as “LIFE” and which is owned by the ICE.

In order to be accepted in those terminals, there is a need for a testing grade as well as cup testing for the flavor and the ICE establishes a “standard” with using certain coffees.

Interesting trends in the Coffee Sector: Reviving Colombians Coffee Culture

Article: “In Colombia, kids learn barista skills with the goal of saving the country’s coffee culture”
The article speaks about the goal of Colombia, one of the leading export country of coffee, in motivating and getting children invested in the coffee industry and profession. In fact, there are some general issues that decrease the interest to enter the industry such as “farmers’ low coffee prices, climate change, and a rapidly aging coffee workforce” These threat the future of coffee sector in Columbia.
According to Colombian Coffee Growers Federation, there are only 10%[1] of Colombian coffee farmers currently looking at coffee as a business for the next generation. This means that the younger generation do not believe in coffee business as a way of life. This can be a huge problem in the next 15 to 20 years for the whole coffee supply as the country represents high market share and as the demand for coffee is constantly increasing (supply-demand unbalances). In addition, we can see the same issue in other producing countries such as Tanzania and Uganda, important coffee exporters, where the average age of coffee farmers is 5 to 6 years older than other farmers.

References:

https://www.nbcnews.com/news/world/colombia-kids-learn-barista-skills-goal-saving-country-s-coffee-n937466

https://www.theice.com/products/15/Coffee-C-Futures

https://www.theice.com/products/37089079/Robusta-Coffee-Futures

https://forexfocus.com/commodities/coffee-futures-trading-in-a-narrow-range/

https://seekingalpha.com/article/4221712-coffee-retreats-higher-low-will-build-base

http://www.ico.org/prices/pr-prices.pdf

https://tradingeconomics.com/brazil/currency

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Winter is coming (iron ore #2)

Movement of the 62%, Fe fines iron ore Price

At the begging of the month of November the price was at 73$/Mt and started to increase till the 9th November, since than the prices is decreasing till today at the price of 74.81$/Mt

The causes:

This is due to the arrival of the winter and to the regulation from the local government of Hebei in China. Hebei is the largest steel production province.

The local government of Hebei announced an “orange” alert for smog in the air forcing the mills of steel to reduce their production until 16 November.

Steelmakers want to maximize their output of steel before winter; therefore, they need a high quality of iron ore in order to obtain the higher margin as possible. That is why the prices went up.

Since the prices of steel is decreasing, in consequence the margin is lower for the Chinese mills. Which push them to buy low grade of iron ore (58%Fe) in order to maintain their profit margin because low-grade iron ore reduce cost.

Since the announcement of “orange” alert, Chinese companies has halve their production, which decreased iron ore, 62%Fe demand.

This graph shows the basis evolution of iron ore from July 2018 to October 2018.

From the middle of July until the beginning of August, the future price is higher than the spot price, which means it is a contango, there is enough supply and lower demand. It is a normal state of the market and the signal of it is that we should store.

Then the situation changes: the spot price is higher than the future price in August, so it is slip to a backwardation which means demand is greater than supply, the market is hot, people want to buy so we should sell and do not store.

Finally, from the beginning of September until October, we can observe that the situation of the market changes again into a contango state. There is more supply than demand and we should store the iron ore.

As the whole of Chinese steelmakers companies count for 74% of the iron ore global market share, if their demand in construction or transportation sector increase, the price of the iron ore will rise also.

Recommendation

We recommend going long because today the prices for future contract are decreasing until the end of 2019, show in the table below.

Sources:

Market Index. (2018). Iron Ore. [online] Available at: https://www.marketindex.com.au/iron-ore [Accessed 15 Nov. 2018].

Investing.com. (2018). Iron ore fines 62% Fe CFR Futures Historical Prices – Investing.com. [Online] Available at: https://www.investing.com/commodities/iron-ore-62-cfr-futures- historical-data [Accessed 15 Nov. 2018].

Argusmedia.com. (2018). China’s steel profit margins accelerate falls. [online] Available at: https://www.argusmedia.com/en/news/1790676-chinas-steel-profit-margins-accelerate-falls [Accessed 15 Nov. 2018].

Scutt, D. (2018). Iron ore prices slump. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/iron-ore-prices-china-steel-demand-hebei-2018-11 [Accessed 15 Nov. 2018].

U.S. (2018). RPT-COLUMN-LME bets on new contracts to force steel industry…………………………………………………………………………………………………………………………………………… [online]

Available at: https://www.reuters.com/article/steel-pricing-ahome/rpt-column-lme-bets-on- new-contracts-to-force-steel-industry-change-andy-home-idUSL8N1XH4OV [Accessed 15 Nov. 2018].

MB, F. (2018). Iron ore pricing explained | Metal Bulletin.com. [online] Metalbulletin.com. Available at: https://www.metalbulletin.com/Article/3811904/Iron-ore-pricing-explained.html [Accessed 15 Nov. 2018].

Foundation, T. (2018). China’s Hebei province issues orange alert for smog. [online] news.trust.org. Available at: http://news.trust.org//item/20181112011729-8eqc1/ [Accessed 15 Nov. 2018].

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Response to US sanctions, Russian record oil output & an OPEC cut of production in sight ?

Russian crude – Weekly bulletin #2

Price movement

We can observe that there has been a significant fall in the general prices of crude oil following the trend already set during the previous weeks. Russia’s oil production has hit record high during the previous month at 11.41 million bpd and OPEC’s forecast of a rather slowing demand for next year have contributed to this drop.

Nevertheless, Iranian sanctions were put in place on 4th November and the OPEC proposal to cut 1.4 million bpd in production 10 days later led the market to believe in recovery of the prices. This was halted as the USA are expected to boost their production to 11.43 million bpd in the last quarter of 2018 and continue ramping up.

Moreover, American crude stocks climbed to 426 million barrels and their weekly build in inventory was 8.79 million barrel, stated by the API, almost 5 million over analysts’ expectations. These are all factors that have contributed to halt the price recovery and to push them further down.

This week was also an important turning point on prices as differential for the Urals went from a discount of 2.18$/bbl on October 15th to a discount of 0.18$/bbl on November 15th. Event explainable as the market reacted prior to US sanctions by shifting its supplier and paying the price.

As for the ESPO, the spread has also known a similar variation since they were traded at 3.60 to 3.70$/bbl premium during mid-October to almost 6$/bbl premium for mid-November contract.

This event is explained by the Chinese refiners needing to fulfil their quotas by the end of the year if they do not want to see it diminished for 2019.

Supply and demand dynamic

The physical trade market was trading around 85$/bbl in the first days of October. The high price for BFOE (BFOE is a forward contract for light-sweet North Sea crude oil that can be satisfied with any of four grades of crude: Brent, Forties, Oseberg, or Ekofisk. The contract was created to add volume to the market for Brent as production from the Brent field has declined.) grades push many refiners to medium sour grades like Urals crude.

“I’m not going to say anything about whether or not we need to limit oil production, we have to be very careful, as every word impacts the state budget,” President Vladimir Putin said. Following the announcement of the OPEC to reduce their production, participants of the previous agreements will meet in early December to discuss the about the deal, which may cause a cut in previous output targets.
Despite the disputes over price volatility, the Russian president is rather pleased with the current price.

Internationally geopolitical events have heavily influenced once again global crude prices. Market participants focus their attention on the rising tension between US and China and also the deteriorating relation between Saudi Arabia and US due to the murder of the journalist Jamal Khashoggi.

Geopolitical risk and increased Saudi crude production are among the factors that have heavily influenced global crude prices and that contributed to the spike in market volatility during October.

Recommendation for the future

The forward curve was still backwardation until October 19 and almost contango around October 31. Dated Brent dropped significantly during October and the Dated Brent CFD forward curve moved from a steep backwardation in the first trading days to almost a contango by the end of October. As of the state of the market on 9th November, we can expect that there should be a slight contango over the next six months. Taking into account the sanctions applied by the USA and a probable cut of production from OPEC, we recommend to be long for the next 3 months.

Sources :

‘Crude Build Halts Oil Price Recovery’. OilPrice.com. Accessed 15 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Crude-Build-Halts-Oil-Price-Recovery.html.
‘Crude Recovery? OPEC Eyes 1.4 Million Bpd Production Cut’. OilPrice.com. Accessed 14 November 2018. https://oilprice.com/Energy/Crude-Oil/Crude-Recovery-OPEC-Eyes-14-Million-Bpd-Production-Cut.html.
‘Far East Russian ESPO Blend Crude Premiums Surge for Nov on Demand from China | S&P Global Platts’, 21 September 2018. https://www.spglobal.com/platts/en/market-insights/latest-news/oil/092118-far-east-russian-espo-blend-crude-premiums-surge-for-nov-on-demand-from-china.
‘IEF Head: Oil Prices To Wobble In $60-80 Range Short Term | OilPrice.Com’. Accessed 13 November 2018. https://oilprice.com/Latest-Energy-News/World-News/IEF-Head-Oil-Prices-To-Wobble-In-60-80-Range-Short-Term.html.
‘Non-OPEC Oil Output Soars Despite Price Slide’. OilPrice.com. Accessed 14 November 2018. https://oilprice.com/Energy/Crude-Oil/Non-OPEC-Oil-Output-Soars-Despite-Price-Slide.html.
‘OPEC+ Said to Weigh Bigger Output Cut on Increasing Risk of Glut – Bloomberg’. Accessed 15 November 2018. https://www.bloomberg.com/news/articles/2018-11-14/opec-said-to-weigh-bigger-output-cut-on-increasing-risk-of-glut.
‘Russia Committed to Continuing OPEC Cooperation, Satisfied with Current Oil Price: Putin | S&P Global Platts’, 15 November 2018. https://www.spglobal.com/platts/en/market-insights/latest-news/oil/111518-russia-committed-to-continuing-opec-cooperation-satisfied-with-current-oil-price-putin.
‘Russia’s Oil Production Sets New 30-Year-High Record In October’. OilPrice.com. Accessed 5 November 2018. https://oilprice.com/Latest-Energy-News/World-News/Russias-Oil-Production-Sets-New-30-Year-High-Record-In-October.html.
‘U.S. Mulls Fresh Sanctions On Russian Oil | OilPrice.Com’. Accessed 13 November 2018. https://oilprice.com/Latest-Energy-News/World-News/US-Mulls-Fresh-Sanctions-On-Russian-Oil.html.