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General news

  • The US strongly denied North Korea’s claims that in his UN speech, Trump had declared war. There are increasing concerns from the UN, and in particular from South Korea, that a fiery response could lead to a fatal outcome, calling for a level headed response from the US
  • Puerto Rico remained without power last week following the devastation caused by Hurricane Maria last week. 3.4m people were left without power, and there are increasing concerns that the extended lack of power could put many at risk of lack of clean water, safe food and medicals supplies.
  • Despite commodity prices being set for the 6th loss in 7 years, open interest has been booming on futures exchanges
    • Last week saw WTI futures hit a record of over 2.4m contracts on the NYMEX and low-sulphur gasoil futures in London exceeding 1m contracts for the first time.
    • These high volumes come despite commodities being one of this decade’s worst-performing asset classes.
    • Low prices have helped increase open interest with more volume being able to be bought for a given amount of money.
    • Low volatility has also boosted volumes with exchange clearing houses generally demanding less margin/collateral to be held against futures positions.
  • Prices for US renewable fuel credits continue to fall as reports indicate that the US Environmental Protection Agency is considering plans to increase the number of fuel credits on the market.
  • The Euro is down 0.5% to $1.1759 following the unrest in Spain over the weekend as Catalans voting for independence in a referendum not recognised by the Spanish government, clashed violently with national police. The single currency remains above its month-low of $1.1515 but investors will be keeping their eye on the how the markets react in the uncertainty of what the ultimate outcome will be.

Agriculture

  • The head of the International Coffee Organisation (ICO) has warned that due to farmers earning so little from coffee, there is a chance that some of them may end up abandoning their crops, cutting supply at a time when demand is growing 2% per year as a result of rising consumption in emerging markets. LIFFE Robusta coffee is currently trading at $1,974/tonne.
  • Malaysian palm oil prices increased last week as the commodity tracked gains in global demand for crude (used as a feedstock for biodiesel) and rival oilseeds on the CBoT. The benchmark palm oil contract on the Bursa Malaysia Derivatives Exchange (December delivery contract) is currently trading at 2,715 Ringgit a tonne.
  • Soy prices have dropped on the back of the US Environmental Protection Agency’s announcement that it is considering a cut to biodiesel blending requirements for domestic fuel supply as of 2018. Soyoil which is widely used to produce US biodiesel fell to 33.23 cents a pound, a 5-week low, as a result of the threat of a drop in demand.
  • The likelihood of another large grain crop in Russia and Ukraine is looking increasingly likely as the countries look set to keep their winter grain sowing area stable this Autumn, with winter grain plantings running ahead of last year’s pace.
  • The world’s biggest agricultural commodities company Cargill has announced a 14% improvement in quarterly results (net profit of $973m) compared to last year. This was thanks to strong sales in beef driven by strong demand, high exports and abundant cattle supplies which resulted in better utilisation of processing capacity boosted profits. Profits were however offset by weaker results in grain trading due to the building of global stocks during the last four crop cycles which depressed market volatility and prices, despite continued growth in strong global demand for grain and oilseeds.
  • According to the US Department of Agriculture’s latest estimate, wheat production in Australia is likely to fall to its lowest in 10 years as a result of persistent dry weather. Production is expected to fall to 20.15m tonnes, 40% lower than last year’s all time high.
  • A Chinese official has said that China’s plans to boost ethanol use in fuel will not have an immediate impact on corn imports as the aim is to consume the country’s own stock.
  • EU grains were supported by a fragile Euro last week as Angela Merkel achieved a hollow victory. The weaker Euro is supportive of commodities traded in the single currency as it makes EU origin products more competitive in the export market.
  • US spring and winter wheat prices fell at the end of last week following the US Department of Agriculture’s announcement that it found that domestic crop has been less badly affected by drought conditions than originally feared; spring wheat futures for December fell 3.8% to just over $6.20 a bushel.

Metals

 

  • Gold prices have dropped to their lowest levels in almost 7-weeks as the USD rose amid growing expectation of a Federal Reserve interest rate hike in December. In the early hours of Monday morning, gold touched $1,272.35, its lowest price since mid-August.
  • According to BHP Billiton, steel demand could be boosted by 150m, in turn bolstering iron ore prices, if Chinese President Xi Jinping’s plans to revive the ancient silk road and a maritime route to East Africa, materialise. This is leading many analysts to believe that Chinese steel demand may not peak until the mid-2020s.
  • Chinese iron ore futures are set for their biggest monthly price drop since 2016 as demand for the commodity is threatened by curtailed steel production. Dalian iron ore for January delivery, the exchange’s most-traded contract, is down 1.6% to Y451.5 today having fallen 3.5% yesterday.
  • China is expected to implement some of its strictest steel production cuts, halving steel production in the country’s largest steel-producing city, the north-east city of Tangshan. This would cut 7.5% of the country’s annual production. Three other key steel-producing cities are expected to announce similar reductions with all producers also being mandated to reduce overall coking coal production by 30%. Front month SHFE steel is currently trading at ¥3,913/tonne.

Energy - UK 

  • Wales’ Cabinet Secretary for Environment has announced that Wales is aiming for 70% renewable energy by 2030.
  • Scotland is on track for a record year of renewable energy generation with clean production for the first half of this year being 17% higher than the same period in 2016.
  • E.ON has announced plans to phase out standard variable tariffs (SVTs) as of 2018 so that SVTs are no longer the default option for customers coming to the end of their exiting tariff. Customers will instead have the option to roll over onto the latest version of a fixed term contract.
  • A new survey by the Institution of Mechanical Engineers (IMechE) has found that around 50% of the UK public would support the construction of coal and gas plants with carbon capture technology.
  • According to UK Power Networks (UKPN), a new load sharing device called “Power Guardian” could save customers up to £8m and free up 95MW of network capacity without having to build any additional cables or substations.
  • According to research by Imperial College Business School’s Centre for Climate Finance and Investment, power generation and storage at a residential level could become profitable in London by 2030, which could in turn disrupt the utilities sector as consumers gradually withdraw from the power grid.

Energy - International

Oil

  • Trafigura, one of the world’s largest commodity traders, has stated it believes that the “lower for longer” era of the oil market is nearing its end. Trafigura’s co-head of group market risk Ben Luckock went as far as to say that there could be an oil crunch by the end of 2019 due to the lack of investment in new projects over the past 3 years which could lead to demand exceed supply by 2-4m barrels a day.
  • With both India and China, which together comprise a third of the world’s population, considering banning petrol and diesel cars, analysts are beginning to map out the potential scenarios for what the EV-boom could mean for the price of oil. One scenario being considered is that if 40% of the world’s on-road vehicles are EVs, global oil demand could plateau in the early 2030s.
  • According to the head of BP’s trading arm in Asia, Chinese consumption has played a substantial role in reducing excess crude stockpiles which is in turn helping rebalance the market. Chinese imports have risen this year as the world’s biggest economy builds its strategic petroleum reserve in an effort to protect itself from future energy shocks.
  • US crude exports have reached a record 1.5m barrels per day.
  • Shell has begun gas production from the Khazzan field in Oman, employing the biggest use of US-style fracking technology so far seen in the Middle East. The $16bn project is producing gas from tight rock, 5km underground, which requires horizontal drilling and hydraulic fracturing.
  • According to US producer Hess, expanding shale output will not match the projected increase in demand and so increased investment in offshore production will be crucial in ensuring enough supply.
  • Despite oil prices having reached their highest level in 2-years last week, two thirds of attendees at last week’s annual Asia Pacific Petroleum Conference in Singapore thought crude would remain range-bound between $50 and $60 over the coming year.
    • Optimism was capped over concerns about the amount of non-OPEC supply which could come online next year, in particular from ramp-up in the US shale industry.
    • Both Brent and WTI climbed last week as inventory draws continued and Turkey threatened to block the 550,000 barrels a day of Kurdish oil which flows through the Turkish controlled pipeline.
    • Last week saw the Brent-WTI spread reach its widest level since August 2015, with Brent valued at a $6.78 premium.
    • Brent  and WTI hit intraday highs last week of $59.49 and $52.76 respectively.

Other

  • California Governor Edmund G Brown Jr has announced that California, Ontario and Quebec have agreed to link their carbon markets. The move will allow the three governments to hold joint auctions of greenhouse emissions allowances and will be the second largest collective carbon market after the EU.
  • New figures by WindEurope indicate that wind power has the potential to supply Europe with 30% of power by 2030 if suitable progress is made in integrating renewables and policy commitments on electrification. The study found that the growth is expected to be concentrated in Belgium, France, Germany, Netherlands, Spain and the UK.
  • The European International Bank (EIB) has approved €1.3bn for energy and water projects. Projects include windfarms in Austria, hydropower in Madagascar, renewable energy projects in Peru, smart meters in France and investment in small scale biomass and district heating schemes across Europe.
  • According to McKinsey, electric trucks could displace up to 3.5m barrels a day of diesel by 2050, equivalent to more than 40% of the industry’s fuel demand.
  • The results of a recent survey by E.ON indicated that half of Europeans expect electric cars to outnumber combustion engine cars within the next 10 years.
  • South Africa’s Sasol is one of the world’s leading technology developers for converting gas and coal to liquid fuels, but it has recently announced its belief that new plants for liquifying these fuels are becoming increasing economically unviable due to the instability of today’s commodity markets.
  • Yuji Kakami, head of Japanese Jera, the world’s largest buyer of LNG, has cautioned producers that in order to achieve the expected “golden age of gas” in Asia, prices need to be more competitive and contracts need to be more flexible. The comments come as increasing supplies give buyers more power, influencing buyers to seek the freedom to trade with who they want as opposed to being forced to lock in security of supply.
  • According to the US Energy Information Administration, coal-fired generation in China will remain flat through 2040 with renewables, gas and nuclear power making up increasing portions of the Chinese energy mix.
  • Despite a supposed embargo imposed by Beijing, according to official customs data, China imported 1.64bn tonnes of coal from North Korea last month.
  • Nine EU member states in Central and South-Eastern Europe have signed up to collaborate on expanding the supply of gas across the region. A joint approach to building an interconnected regional electricity market and efforts to increase investment in renewable and energy efficiency to improve access to alternative sources of energy, promote competition and lower prices.