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General news

  • Tensions are once again rising between the USA and North Korea. Last week saw the US military fly two strategic bombers over the Korean peninsula. Meanwhile, Trump met with top defence officials to discuss how to respond to any further threats from North Korea. The moves follows North Korea’s alleged hacking of South Korea’s military documents which supposedly contained a plan to assassinate North Korea’s leader Kim Jong-un as well as wartime contingency plans.
  • Catalonia’s leader Carles Puigdemont has yet to formally declare independence from Spain, an announcement which was expected last week. The Spanish government has warned that Catalonia must revoke the declaration or face direct rule from Madrid.
  • The International Energy Agency (IEA) expects that the US will see a fall energy-related carbon dioxide emissions this year, continuing the trend seen in 2015 and 2016, but anticipates a 2.2% increase in 2018 due to a forecasted increase in the number of heating and cooling in 2018 where energy needs to be spent on air conditioning, increasing demand for heating and cooling by 7.5% and 2.4% respectively.
  • Lukoil, Russia’s second-largest oil company, has indicated that it is anticipating Western sanctions on Russia to remain in place for at least the next 10 years. The financial and technology-sharing sanctions imposed following Russia’s invasion of Ukraine in 2014 and the annexation of Crimea have been most recently compounded by US sanctions following Russia’s alleged involvement in the 2016 US presidential election.

Agriculture

  • According to the Agriculture and Horticulture Development Board (ADHB), agriculture incomes could either be significantly reduced, or increased, depending on the Brexit trade deal agreed upon. If a free-trade agreement is established, the UK would essentially open its borders to low-cost producers. This could impact each agricultural sub-sector differently. The beef cattle and sheep sub-sector for example, which depend on exports, could see improved incomes post-Brexit, whilst dairy farmers on the other hand could see incomes drop sharply due to competition from low-cost producers. The ADHB’s report concluded that regardless of the sub-sector, the higher performing farms will be the ones which remain profitable post-Brexit, and so highlighted the importance of farms improving productivity before the UK leaves the single market.
  • For the first time in 5 months, the price of Australian beef is rising thanks to rains across live-stock producing regions which have brought relief to farmers following months of depleted sales. The Australian benchmark cattle index, the Eastern Young Cattle Indicator (EYCI), rose to 538.25 Australian cents a kilogram this week, up almost 7% from the two-year lows hit in September. Australia is the world’s third largest exporter of beef and has recently fallen victim to one the worst droughts in decades.
  • According to food supply and statistics agency Conab, Brazil’s 2017/18 output may drop due to the less favourable climate in this season compared to last. Conab has estimated Brazilian grain production between 224.1m and 228.2m tonnes, compared to 238.5m tonnes in the previous cycle.
  • China has increased its forecast for its corn supply deficit for the 2017/18 crop year to 4.3m tonnes, up from the 890,000 tonnes predicted in September. The revision comes on the back of lower-than-expected output and higher than anticipated demand.
  • The unusually late US harvest of corn and soybeans is leading analysts to question the accuracy of the government’s production forecast with some betting that the crop size will be substantially smaller than anticipated.
  • The US Department of Agriculture (USDA) October soybean forecast increased the expected harvested area by 740,000 acres but decreased the expected yield by 0.4 bushels to 49.5 bushels per acre. Although the harvest area increase was expected, the lowering of the yield was not. The general market expectation was that yield would be increased to 50 bushels per acre, a 0.1 bushels per acre increase from September. The harvest increase and yield decrease however essentially cancel each other out with forecasted production remaining the same as September’s estimate of 4.43bn bushels, an all-time high. Front month CBoT soybean is currently trading at 996.5 cents a bushel.

Metals

  • Nickel for 3-month delivery on the LME climbed to $11,600 a tonne last week, the highest price in 4 weeks.
  • The European Commission has imposed anti-dumping duties on imports of hot rolled flat steel which is used in gas containers, pressure vessels, ship building and energy pipelines from Iran, Russia, Brazil and Ukraine. The commission believes doing this will provide a level playing field and improve fairness of competition for European companies,
  • Shares in Kobe Steel Ltd, the Japanese steel manufacturer, have plunged following allegations that data has been falsified. There are now concerns that its steel, copper and aluminium products may not meet customer specifications. Customers include automotive, aeronautical and defence manufacturers..
  • According to customs data Chinese iron ore imports were over 11% higher last month than they were last September, despite steel mills preparing for winter production cuts.
  • Goldman Sachs analysts have said that although the EV boom is good news for boosting demand for base metals, supply chains could struggle to meet battery industry needs. A shortage of nickel which is used in batteries, copper which is used in wiring or aluminium which is used to reduce the weight of cars, could ultimately slow the EV boom.
  • Volkswagen’s attempts to tender a long-term supply of cobalt have failed, with miners indicating that the fixed price specified in the tender being low. The carmaker whose brands include Porsche, Audi, Skoda and Bentley, was seeking a minimum 5-year supply of cobalt at a fixed price in an effort to protect themselves from supply shortage and price volatility. LME cobalt is currently trading at $59,250 per tonne, having jumped by over 80% this year.

Energy - UK 

  • According to EY’s Renewable Energy Country Attractiveness Index (RECAI), the UK remains the 10th most attractive country for renewable energy investment. China is at the top of the list and India second, with the US having fallen down the rankings because of the threat of import tariffs which destabilised the solar market.
  • Ofgem have confirmed they are going to cooperate with the government in realising Theresa May’s plan to cap the most common types of gas and electricity tariffs. Ofgem have however said that it needs to wait for legislation to be in force before it could take action on standard variable tariffs (SVTs) and that this would no likely happen until next year.
  • Scottish First Minister Nicola Sturgeon has announced that her government is to set up a state-owned, not-for-profit renewable energy company. The FM said that the company would be set up by 2021.
  • Later today the UK government is set to release draft legislation to lower the cost of energy bills.
  • The National Grid has increased its forecast for the surplus margin for power to 10.3% for this winter, 5.7% up from last winter.
  • UK wholesale winter gas prices are expected to remain elevated due to high coal prices and uncertainty regarding French inventory levels and nuclear outages. The UK winter 2018 gas contract is currently trading at £49.75.
  • Compared to the gas market, the UK electricity market appears more relaxed about the winter period with National Grid stating last week that the UK is able to meet its electricity demand this winter. The winter 2018 UK electricity contract is currently at £48.02.
  • Q3 2017 has broken the UK record for the number of new EV registrations, hitting 12,932, a 36% increase from the same period in 2016.

Energy - International

Oil

  • In a rare move, Saudi Arabia are to export fewer barrels of crude next month than the contracted demand. The country’s Minister of Energy announced last week that despite the contracted demand for Saudi crude being 7.7m barrels a day, only 7.2m barrels a day has been allocated to export, a move which reaffirms Saudi Arabia’s commitment to curb supplies and highlights the belief of the world’s largest oil exporter that global producers need to take extreme measures to reduce surplus inventories.
  • OPEC analysts believe that oil prices will remain range-bound between $50-55 next year because any high prices would incentivise US producers to expand drilling activities which would in turn increase supply and depress prices.
  • BNP Paribas has announced it is to cease working with companies whose primary activities are related to shale gas or tar sands. The move follows the French banking giant’s decision to reduce financing for coal-fired generation and increase investment in renewable energy in order to further their efforts to battle climate change.  
  • Oil prices rose last week on the back of declining US crude production and inventories, and strong Chinese imports, further supporting the signs that the market is tightening.
  • Conflict has broken out in the oil-rich city of Kirkuk between Iraqi and Kurdish forces following last month’s Kurdish independence referendum. Brent rose to $58.11/bbl just after 8am GMT this morning, the highest level in over 2 weeks, with WTI also up at $52.19/bbl.

Other

  • To expand its gas and power distribution network, Total has entered the French residential power market. The company hopes that up to 3m people will subscribe to Total Spring, “a natural gas and green power offering that is 10% cheaper than regulated tariffs.”
  • German E.ON and Italian Enel have for the first time traded using Enerchain, a new blockchain marketplace, which allows partners to conduct deals directly with each other as opposed to requiring a central intermediary. The move was driven by a push towards decreasing the cost of electricity procurement and passing on some of these savings to customers.
  • The US Environmental Protection Agency (EPA) has proposed to repeal the Clean Power Plan (CPP) which was enacted by Obama in an effort to curb greenhouse gas emissions from power plants. It is not yet clear that if the Trump administration do indeed repeal the bill if the EPA will replace it with new regulation.
  • According to WindEurope, encouraging new businesses to adopt renewables via Power Purchase Agreements (PPAs) is integral to unlocking Europe’s massive potential for clean growth.
  • The US continues to make progress in increasing its LNG production and output with the first wave of exporting facilities coming online over 2016-19 anticipated to export 9bn cubic feet of gas a day, equivalent to 12% of US production. The second wave of 20 more proposed plants are however subject to uncertainty as although these projects are backed by companies and the US administration, buyers for the gas have yet to be secured. The ability of US producers in driving costs lower than Australian producers will be the deciding factor in securing buyers. An official at the National Energy Administration has indicated that China expects to have solved the problem of renewable energy going to waste by 2020 at the latest. Renewable energy storage is one of the biggest challenges facing widespread renewable energy adoption.
  • Shell has agreed to buy NewMotion, one of Europe’s largest EV charging providers. The company own more than 300,000 private EV charging points for homes and businesses in the UK, France, Germany and the Netherlands, and provides access to 50,000 public points across 25 European countries.