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LNG – The seasonal and growing commodity (Weekly Bulletin # 1)

Supply and demand factors

LNG is a product directly impacted by the Natural Gas supply and demand: LNG is NG that is liquefied. We then have to look at the supply side which is the amount of natural gas production, the amount of gas in storage and the volumes of imports/exports. The price variations will also affect the supply side: a decrease in the price will reduce production and sales of stored gas, while an increase in price will tend to show the opposite trend.
On the demand side, we can observe factors such as the weather (winter/summer), the petrol prices (substitute) and the economic growth and policies in a country.

If we look at this graph again, which shows the American consumption of gas over the years, we can definitively observe a seasonality due to the weather: cold weather increases demand for heating while summer increases demand for cooling, meaning a higher electricity consumption (since many electric power plants are fuelled by NG, it directly affects the demand). This example could be used to explain NG consumption in other countries such as Japan or South Korea since NG is used for the same purpose.

Price

The two biggest LNG importers are Japan and Korea (accounting for 34% and 15% respectively in world LNG imports), since they have no access to pipelines. Prices of NG there is different and higher than other NG markets (US: Henry Hub; Europe: NBP) since it includes cost of freights and gasification/regasification costs (see graph here).

Inventory levels of LNG

The demand of LNG increases during the winter when people need natural gas to produce the heat. During the winter, the inventory level of LNG is low because of the peak demand of the market. The opposite occurs during the summer when the climate is pleasant. In this period, the inventory level of LNG tends to increase.
The seasons are also linked to the spot and future price of LNG. During the winter, the spot price of LNG is higher than the forward price, and during the summer it is the opposite.

The present price of LNG

As shown in the Asian LNG prices’ graph, the spot price of LNG is equal to $12 per mbtu. The spot price of NG (Henry Hub) is equal to $3.53. The differential between these two commodities is equal to $8.47.

As we can see on the natural gas’ forward price curve, the forward price is currently equal to $3.84. In order to know the liquefied natural gas’ forward price, the differential of $8.47 shall be added to the natural gas’ forward price and gives $12.31.

By comparing the LNG’s spot price and LNG’s future price, we determine that the forward price ($12.31) is equal to the spot price ($12). The demand of LNG will probably raise in the next months. We will see if the spot price will be higher.

 

 

Long-term recommendation – US/China trade war

The winter period in China might be seen as a factor which makes the Chinese market as a bullish market for US LNG suppliers. However, the trade war between China and USA has led to a tariff of 10% on US LNG imports. Because of this tariff of 10%, China had to find some alternatives to avoid this impact on the LNG demand of the country. Indeed, China tied deeper its trade with Russia and is developing a pipeline project for transporting gas from Siberia. Moreover, China shows a high interest to join the pipeline “TAPIA”, which is a pipeline project that involves importing natural gas from Turkmenistan through Afghanistan, Pakistan and India. These projects will help China to prepare for a future increase in demand, since the country is seeing to become the world’s biggest market of natural gas. The consequence for the US would be to loss its market share in China, simply because China will probably not invest in US LNG anymore. In order to avoid a huge deficit for the US, Trump had to convince EU countries and Japan to increase their imports of US LNG.

LNG market shows some opportunities and possible growth in the supply and demand side. However, since the US/China trade war, LNG is becoming more a diplomatic concern. We recommend to pay attention to LNG market which might show a positive or negative fluctuation on the price.

References

TAKESHI, Kumon, 2018. “US-China trade war weaponizes liquefied natural gas.” Nikkei (online). October 9, 2018. (Consulted on November 7, 2018). Available to the following URL:
https://asia.nikkei.com/Spotlight/Asia-Insight/US-China-trade-war-weaponizes-liquefied-natural-gas

BP, Natural Gas Prices. (Consulted on November 8, 2018). Available to the following link :
https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/natural-gas/natural-gas-prices.html

ITC, Trade Statistics For International Business Development. (Consulted on November 8, 2018). Available to the following link :
https://www.trademap.org/(S(ki1e5knkr0ide3lrwd52fdsq))/Country_SelProduct_Map.aspx?nvpm=1%7C%7C%7C%7C%7C271111%7C%7C%7C6%7C1%7C1%7C1%7C1%7C1%7C2%7C1%7C1. Consulted November 2018

EIA, 2017. « Factors Affecting Natural Gas Prices ». EIA (online). August 23, 2017. (Consulted on November 8, 2018). Available to the following link :
https://www.eia.gov/energyexplained/index.php?page=natural_gas_factors_affecting_prices. Consulted November 2018

EIA, 2018. “Short-term energy outlook”. EIA (online). November 6, 2018. (Consulted on November 8, 2018). Available on the following link:
https://www.eia.gov/outlooks/steo/marketreview/natgas.php

YCHARTS, 2019. “Henry Hub Natural Gas Spot Price”. Ycharts (online). November 5th, 2018. (Consulted on November 12th, 2018). Available to the following URL:
https://ycharts.com/indicators/natural_gas_spot_price

TERAZONO, Emiko, 2018. “LNG prices leap on strong Chinese demand.” Financial Times (online). October 2nd, 2018. (Consulted on November 7th, 2018). Available to the following URL:
https://www.ft.com/content/e54e6392-c332-11e8-8d55-54197280d3f7

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BRAZILIAN CURRENCY & POLITICAL STABILITY AFFECTING COFFEE MARKET (coffee#1)

The main drivers for a change in price in this period:

1. Macroeconomic factor:

Presidential election in Brazil has slumped the Brazilian currency “real”. This resulted in making profitable to ship the Robusta coffee beans “for delivery on the exchange” in Europe. Plus, the Brazilian coffee producers have been hammered by the currency depreciation as it has raised the cost of inputs of production (such as: fertilizer, pesticides)

However, as we can see the real appreciated back in October that is why the Shipments to Europe have now started to slow down. The cause of this decrease is because the market favors Jair Bolsonaro and is forecasted to be the Brazilian’s new President. However, the latter, as Trump, has some plans such rising the economy in brazil which was in recession with some new financial measures favouring enterprises to invest as well as attract foreign directt investors within the country. Some of the new regulation would increase the use of Amazonian forest resources which would mean more supply provided by the farmers would be available.

2. Currency

The UDSBLR is the relation between the US dollar and the Brazilian Real- shows the value of a us dollar in Brazilian real- so decrease in the graph means the real is getting stronger (to buy 1 dollar you need less real) and increase means the real weakens.

The coffee composite indicator is an index for the price of all kinds of beans aggregated together.

We can also explain this as the Brazilian currency depreciates versus the US Dollar, there is more demand as you can buy the same quantity for less price in USD and therefore the price increases which explains the negative correlation between the USDBL and the coffee composite indicator.

We can see in both graphs during the period of the presidential election in Brazil the price of coffee bean is volatile due to the decrease in political stability of the country.

Arabica Coffee Bean Price:

Robusta Coffee Bean Price:

As we can see in both of these graphs, which represent the price of Arabica and Robusta beans over the past 2 years, the market was bearish for a long time while now. Around the end of September, the price started to increase.

As price of coffee decreased, the demand obviously increased, as importers wanted to buy it while the price is still attractive. However, this level of low prices negatively impacted productivity due to low farmers salaries (which don’t incentive farmers to produce). This results in a high demand and a low supply which pushes the prices up as we are seeing now in the futures market.

Our Recommendation:

As we are currently in a carry market, we think it would better to buy and store the coffee.

 

References:

https://www.bbc.com/news/world-latin-america-46039996?intlink_from_url=https://www.bbc.com/news/topics/c4wq0zk0wq2t/brazil-general-elections-2018&link_location=live-reporting-story

https://seekingalpha.com/article/4211740-4-reasons-coffees-price-moving-higher?page=2?article_roadblock

https://tradingeconomics.com/brazil/currency

https://www.theice.com/products/15/Coffee-C-Futures/data?marketId=5305276&span=3

https://www.bloomberg.com/opinion/articles/2018-10-29/coffee-s-brazil-election-buzz-might-not-last-if-real-weakens

https://www.cnbc.com/2018/10/01/reuters-america-coffee-industry-could-act-to-raise-prices-brazil-association-abic.html

https://www.investing.com/analysis/tropical-trump-bolsonaro-looms-large-over-sugar-coffee-rally-200347582

https://www.climatecouncil.org.au/2016/09/12/trouble-is-brewing/

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West African Crude Bulletin#1

October is not really a good month for crude oil prices. Oil prices got their biggest monthly drop in more than two years. For example, the WTI (West Texas Intermediate crude) dropped by 10.8 % in October. The West African grades prices for Qua Iboe and Nemba are also getting down.
Trafigura and Mercuria traders are assuming that Brent crude oil could rise to
$90 per barrel by the end of December and even pass $100 at the beginning of 2019, as markets tighten once U.S. sanctions against Iran are fully implemented in November.
OPEC as well as Russia are planning to raise their output to counter falling supply from Iran, although no decision was publically made yet. Some sources are saying that OPEC and other producers are willing to raise their output by 500,000 bpd when the worldwide production in June 2018 was around 92,6mbpd.
The oil prices are dropping down Following Trump’s tweets (see below) and intervention in the media, the price of crude oil has decreased significantly. Donald Trump was complaining that the oil prices are too high; moreover, he accused OPEC of pushing oil prices higher, and said that they should lower their prices. He actually expressed his discontent on twitter, after which, the oil prices dropped down and are still going down. He even threaten Middle East to withdraw US military resources if they do not want to cooperate. We assume that Trump’s pressure on OPEC is an attempt to make US crude oil more attractive. For instance, in July 2018 the US production was around 11mbpd and exportation around 1.8mbpd in the half of 2018. In 2018, the US has boosted their exports to Asia, Oceania such as China, South Korea and India by 80% compared to 2017.

To conclude, we think that the West African crude is not the only one which is suffering from Trump’s actions but the crude oil industry as a whole.

The forward curve below represents BRENT CRUDE OIL for year 2019. We chose the BRENT CRUDE as it is a benchmark for West African Crude oil. We can see that the price slightly decreases over time and hence tells us that this forward curve is in backwardation.

As we are in backwardation, we recommend to go short. There is no incentive to store because the price decrease over time. Storing crude would lead to carrying costs, which would not be economically viable.

Sources
Prices falling: https://mobile.reuters.com/article/amp/idUSKCN1N427C
Trump’s Tweets: https://twitter.com/?lang=fr
US export: https://www.hydrocarbonengineering.com/gasprocessing/24092018/eia-crude-oil-was-the-largest-us-petroleum-export-inthe-first-half-of-2018/
World production: https://www.forbes.com/sites/rrapier/2018/06/14/world-setsnew-oil-production-record/#4d589dcd752d
Trump’s pressure on OPEC : https://www.cnbc.com/2018/09/20/trump-wantsopec-to-keep-crude-low-it-cant-do-that-oil-expert-says.html
Brent backwardation: https://www.spglobal.com/platts/en/marketinsights/latest-news/oil/091218-brent-cfd-curve-moves-into-backwardationamid-bullish-crude-oil-outlook
Brent Futrue contract: https://www.theice.com/products/219/Brent-CrudeFutures/data?marketId=222467

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China and the structural change on the iron ore market (Iron ore – Bulletin 1)

 Price movement recap

In May, the transaction activity for imported iron ore slowed down in China due to an general economic slowdown because China remains under threat from punitive US tariffs on Chinese imports. Then in June, the prices of iron ore fluctuated and in July, steel production restrictions due to China’s anti-pollution measures impacted China’s imports of iron ore : the demand of iron ore increased because China has to reduce its steel production. From August to October, prices of iron ore are gradually inscreasing.

 Dynamic of supply and demand

Due to the new anti-pollution rules registered in the Three-Year Plan Action by the China government, the Chinese steelmaker imports more iron ore.

However, they are looking for a higher quality of iron ore in order to pollute less. This 2020 action plan to air quality is leading to steel producers to offer a rich iron ore on the market as reducing costs as well.

To illustrate this structural change, International mining and Resources Conference, on this Monday 29th of October until today, the 1st of November in Melbourne, the CEO of Rio Tinto Group, Jean-Sebastien Jacques suggests new ways of mining because the issues of the protecting air, water and land are more important more than ever. He considers that the mining has seen as an “old industry” that it is necessary to modernise by using automation and artificial intelligence (AI).

In that sense, as the CEO of FMG, Elizabeth Gaines is introducing autonomous trucks automatizing their ways to production to propose a best quality to the China demand because China demand still very strong.

Finally, this structural change concerns all of iron ore companies. For example, the emerging iron ore company Finders Mines Limites (FMS) rating in the Australian Securities Exchange which is focusing on the exploitation of the mines in the Pilbara region (western Australia ) operates with discount rates for lower-grade and high-impurity iron ore in order to improve the quality of their iron ore.

 Recommandations

Since iron ore prices per metric tonne are constantly rising due to Chinese factors, we believe that it would be better to sell iron ore to earn a margin.

Sources

MB, F. (2018). ‘Structural change’ in iron ore market leads Flinders Mines to review options | Metal Bulletin.com. [online] Metalbulletin.com. Available at: https://www.metalbulletin.com/Article/3841133/Search-results/Structural-change-in-iron-ore-market-leads-Flinders-Mines-to-review-options.html [Accessed 1 Nov. 2018].

GmbH, f. (2018). Iron Ore PRICE Today | Iron Ore Spot Price Chart | Live Price of Iron Ore per Ounce | Markets Insider. [online] markets.businessinsider.com. Available at: https://markets.businessinsider.com/commodities/iron-ore-price [Accessed 1 Nov. 2018].

Creagh, B. (2018). Rio Tinto CEO targets a reinvention of mining – Australian Mining. [online] Australian Mining. Available at: https://www.australianmining.com.au/features/rio-tinto-ceo-targets-reinvention-mining/ [Accessed 1 Nov. 2018].

Eco-Business. (2018). China releases 2020 action plan for air pollution. [online] Available at: https://www.eco-business.com/news/china-releases-2020-action-plan-for-air-pollution/ [Accessed 1 Nov. 2018].

Mining-journal.com. (2018). “… no one at Fortescue is displaced as a result of automation”. [online] Available at: https://www.mining-journal.com/leadership/news/1341574/-…-no-one-at-fortescue-is-displaced-as-result-of-automation [Accessed 1 Nov. 2018].

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Russian Crude Oil Bulletin#1

Price movement 

Prices on the low despite US sanctions

 

Oil prices spiked at the beginning of October to a four-year peak, with Brent Crude at around US$85 per barrel on worries over stretched global supplies due to US sanctions on Iran.

However, following this spike, prices came close to post their biggest monthly percentage decline since July of 2016 as rising production and the potential slowdown in energy demand outweighed expectations.

An important fact has been whether other producers will compensate the diminished supply. OPEC, led by Saudi Arabia, and other leading producers, Russia, agreed in early summer to rise crude production after over a year of reduction. Comments in recent weeks by the Saudis regarding their potential maximum production—reaching up to 11 million barrels a day—have further weighed on prices of late.

Examples to illustrate the supply and demand dynamic of the commodity.

The main change we have seen recently is about the market sentiment, partially due to increasing concerns about demand as a result of the trade conflict between the U.S. and China. However, “real demand data remained robust in September,” Commerzbank said[1]. On the supply side, producing countries have also played an important role, with crude oil inventories in the U.S. having risen significantly for several weeks. Saudi Arabia, Russia and Libya boosted up their oil production in a noticeable manner in October. The result of these actions is positive as oil producers seems to be successful in offsetting the supply outages coming from Iran and Venezuela.

 

The OPEC nations are struggling to fully deliver on the oil production increase of 1 million bpd promised in June, Reuters reported, quoting an internal OPEC document.

In comparison to May, Saudi Arabia ramped up its production by 524,000 bpd but in the meantime Iranian, Venezuelan and Angolan production fell nevertheless, the non-OPEC partners in the deal have significantly increased their combined production. Last September, Russian oil production reached 11.36 million bpd. As a whole, the country’s production has increased by 450,000 bpd since May, but part of that increase was counterbalance by a decrease in Kazakhstan, Mexico, and Malaysia.

Recommendations to be short (sell) or long (buy) for the next 3 or 6 months.

“There’s a sense that the global economy goes into a bit of a slowdown and demand in 2019 isn’t quite as robust as it has been over the past couple years,” said Brian Kessens, energy asset manager at Tortoise in Leawood, Kansas. “We are still in more of a risk-off sentiment.”[2]
In addition to demand side concerns, all eyes are on the impact of Iran’s sanctions, which are expected to come into effect on Nov. 4, with many believing that Saudi Arabia and OPEC will do what is necessary to fill any shortage supply.

Following every bit of information stated previously, we recommend to be short on the commodity as we fully trust in OPEC and other producers capacity to fill the gaps and prevent shortage.

Sources

Beals, Myra P. Saefong, Rachel Koning. « Oil on Track for Biggest Monthly Loss in More than 2 Years ». MarketWatch. Consulté le 1 novembre 2018. https://www.marketwatch.com/story/crude-oil-tips-higher-but-is-about-to-log-a-9-october-retreat-2018-10-31.

« Brent Crude Futures | ICE ». Consulté le 1 novembre 2018. https://www.theice.com/products/219/Brent-Crude-Futures/data?marketId=222467.

« Brent Futures Curve ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/brent-futures-curve.

« Crude Weighed Down by Global Economic Slowdown Worries », 31 octobre 2018. https://www.bloomberg.com/news/articles/2018-10-31/oil-set-for-biggest-monthly-decline-since-2016-on-growth-fears.

« Global Oil Demand and Supply ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/global-oil-demand-and-supply.

« In sign of supply flexibility, Russia wields oil stocks to boost output ». Consulté le 1 novembre 2018. https://www.cnbc.com/2018/07/19/reuters-america-in-sign-of-supply-flexibility-russia-wields-oil-stocks-to-boost-output.html.

« OECD / US Oil Inventories ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/oecd-us-oil-inventories.

« OECD / US Oil Inventories ». ERCE. Consulté le 1 novembre 2018. https://www.erce.energy/graph/oecd-us-oil-inventories.

« Russia’s Oil Output Won’t Go Much Higher ». OilPrice.com. Consulté le 1 novembre 2018. https://oilprice.com/Energy/Crude-Oil/Russias-Oil-Output-Wont-Go-Much-Higher.html.

« Urals Oil Price Charts ». OilPrice.com. Consulté le 1 novembre 2018. https://oilprice.com/oil-price-charts.

[1]https://www.marketwatch.com/story/crude-oil-tips-higher-but-is-about-to-log-a-9-october-retreat-2018-10-31

[2]https://www.bloomberg.com/news/articles/2018-10-31/oil-set-for-biggest-monthly-decline-since-2016-on-growth-fears

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To bean or not to bean – Weekly bulletin N°1

Price

As we can see the price of soybean for the last six months has dropped dramatically between the end of may until July, the reason for that is definitely the impact of the trade war on the price, it first appears in July 2018 when China imposed a 25 percent on imports of soybean coming from the U.S. as a response from the tariffs imposed by the U.S on Chinese export.


American soybeans are really important to feed the growing middle class in China, where soy-fed pork has become an important part of the diet. The demand will be even more important this fall when soybeans from Brazil will be rare because of the end of their season. The typical period during which the U.S used to ship almost half of his production to China is in October and November so that could explain the rise of the price even though the trade war is still there, China still needs soybeans coming from the U.S.

Heavy rains devastate harvests

For the second year in a row, heavy rains had a negative impact in the soybean production. On one hand, the farmers have trouble meeting their quotas of soybean production. On the other hand, the rain forced shipments to pass down the Mississippi River instead of the usual west coast. This creates a bottleneck for the transport, which leads to delays, which then leads to an increase in the price of the soybean.

Iran might become the new first importer of USA

Even though Iran had big political issues with the USA, some reports on Financial Times and on other websites showed that the USA were filling the gap that China left, once they started to increase the taxes of importation from them, with Iran. Indeed, Iran became the first main importers of Soybean from the US in August 2018. The data from the U.S. Census Bureau explained that Soybean exports from the USA increased in August, to 123.7 MB in 2018 compared to last year. It also informed that Iran purchased 15.2 MB of U.S. soybeans which was much more than the past five years.

Recommendation

Recently we observed that the price of soybean is quite low. So with basic business knowledge, it will be clever to buy at the lowest price and based on this price forward curve we can see that there is an upward trend, hence the price is going to be higher. Therefore, buy at a low price and sell at the highest price. Moreover, we have to be informed of the upcoming events during the trade war.

Sources

Daniel Shane, C. (2018). China may soon regret slapping tariffs on US soybeans. [online] CNN. Available at: https://edition.cnn.com/2018/10/01/economy/china-soybeans-trade-war/index.html [Accessed 28 Oct. 2018].

Macrotrends.net. (2018). Soybean Prices – 45 Year Historical Chart. [online] Available at: https://www.macrotrends.net/2531/soybean-prices-historical-chart-data [Accessed 28 Oct. 2018].

1, B. (2018). Soybean Outlook – Stop guessing, start selling. [online] Farm Futures. Available at: https://www.farmfutures.com/story-weekly-soybean-review-0-30767 [Accessed 28 Oct. 2018].

Press, T. (2018). Rainy harvest devastates Louisiana soybeans for 2nd year. [online] The Seattle Times. Available at: https://www.seattletimes.com/business/rainy-harvest-devastates-louisiana-soybeans-for-2nd-year/?utm_source=RSS&utm_medium=Referral&utm_campaign=RSS_all [Accessed 28 Oct. 2018].

Shedlock, M. (2018). Iran Replaces China as Top Importer of US Soybeans. [online] FXStreet. Available at: https://www.fxstreet.com/analysis/iran-replaces-china-as-top-importer-of-us-soybeans-201810302207 [Accessed 28 Oct. 2018].

Continue reading “To bean or not to bean – Weekly bulletin N°1”

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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

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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