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- Despite the increasing likelihood of a disorderly Brexit and the views of many economists that this would be a mistake, the Bank of England is to proceed with raising interest rates for the first time in 10 years.
- Latest figures show that Britain’s economy unexpectedly picked up speed in Q3 of this year, cementing expectations of next month’s interest rate hike by the Bank of England. Quarterly domestic product growth rose to 0.4% compared to 0.3% in Q2.
- Brexit minister David Davis has said that he expects the EU to provide guidance on its approach to a Brexit transition deal by December.
- Despite the Catalonian crisis, Spain’s economy, the fourth largest in Europe, is set to grow above 3% this year.
- According to the World Meteorological Organization, the concentration of CO2 in the Earth’s atmosphere reached a record high of an average 403.3ppm in 2016. Last year’s increase was 50% higher than the average of the past 10 years with the WMO blaming the rise on a combination of human activity and the El Niño weather phenomenon.
- Agricultural traders and farmers are on edge following meteorologists raising the probability of the La Niña weather phenomenon occurring at the end of this year and persisting into Q4 of 2018. The phenomenon threatens droughts in Brazil, Argentina and the US Midwest, and excessive rains in Australia and Southeast Asia. The phenomenon, caused by the cooling of the Pacific Ocean, was last experienced in 2012 and caused grains and oilseeds prices to surge as floods and droughts impacted on production, harvesting and farming logistics.
- In a move to take advantage of the better pricing for biofuel as sugar prices remain weak, Brazilian mills have increased the amount of cane they are using for ethanol production. The centre-south region of Brazil is the world’s largest cane producing area, and has increased the amount of cane going to ethanol producers from 53% in late September, to 56% in the first half of October.
- Ivory Coast cocoa farmers have said they are willing to sell their beans below the minimum farmgate price of 700 CFA francs in order to stimulate buying interest which has been low throughout the supply chain due to reduced lending to exporters.
- Following 4 years of oversupply of grains which have pushed grain prices down and reduced agricultural revenues, US farmers are finding they need to take measures to cut costs in order to compete with cheaper Argentinian and Brazilian products. Measures including buying cheaper seeds, spending less on fertilizers and delaying buying equipment are being taken in order to ride out the downturn. The forecasted bumper crops and rising energy prices are however indicating that 2018 is set to be yet another tough year for farmers.
- For the first time in a decade, the Chinese government has cut its minimum purchase price for wheat for 2018. China, the world’s largest producer, is making the cut in an effort to help whittle its mammoth stockpiles. The price has been cut to ¥2,300, down 2.5% from this year.
- Although China has just harvested its largest soybean crop in 6 years, its necessity to import from its primary suppliers, the US and Brazil, is not likely to fade anytime soon. The efforts made by the government to boost production by 60% between 2015 and 2020 appears to be failing to have an impact.
- Latest figures indicate that the global sale of light vehicles rose 3.1% to 70.2m in the 12 months to 30 September of this year.
- US company Freeport-McMoRan have insisted that they are committed to resolving its differences with the Indonesian government and reach a deal to keep producing copper and gold in the country by the end of the year.
- The company has been in dispute with the Indonesian government over its operations at Grasberg, one of the world’s biggest copper mines, with the Indonesian government seeking to take more control over its natural resources.
- Copper prices having risen almost 30% to above $7,000 this year thanks to economic growth which has driven demand from manufacturing sectors, and the temporary closure of several big copper mines, including Grasberg.
- According to the International Nickel Study Group, global nickel demand looks set to outstrip supply for the third year in a row in 2018, with demand from both the stainless-steel industry and the production of nickel containing batteries growing.
- Although nickel prices have been the victim of excess supply and bulging stockpiles over the past few years, the sentiment is definitely beginning to shift with nickel having breached the $12,000 benchmark this week.
- The shift comes thanks to analysts and investors realising that nickel is likely to play an integral role in EV battery chemistry.
- The difference between nickel and other battery materials such as cobalt and lithium is that nickel is easily traded via futures contracts on both the LME and SHFE, and there are more ways to establish exposure via the equity market and large listed companies such as Glencore and Vale.
- There are also rising concerns that sourcing enough nickel in the required form for nickel-sulphate battery chemistry could be a challenge as most of the incremental supply through 20205 will be either ferronickel or nickel pig iron, which are not suitable.
- According to China’s industry minister, China has met its 2017 target for cutting steel capacity. China had aimed to close 50m tonnes in 2017, with the longer term goal of reducing annual crude steel capacity by 100m to 150m within the next 3-5 years.
- Concerns were raised at this month’s World Steel Association AGM about the surplus of steel factories and overcapacity in the industry. The issue with overcapacity is that it leads to mills being underused and when this happens, raw materials are used less efficiently and producers end up having to lower prices to win orders and cover their high fixed operating costs.
- Iron ore output from Brazil’s Vale is expected to rise to 390m tonnes nest year, up from the 360m forecasted for this year. The increase could be down to Vale having held back inventory, anticipating higher prices ahead.
- Metals have been one of the best performing asset classes of 2017 rising by more than 20% thanks to an acceleration in economic growth and supply side reforms in China, the world’s biggest consumer of commodities. Looking forward, and for the first time since the end of the “commodities super cycle” of the 2000s, major mining houses are starting to confidently talk about their growth options and how they can tap into the green energy revolution.
Energy - UK
- Despite Scottish parliament’s ban on fracking, Theresa May has confirmed that the UK government will set out further proposals to support fracking, arguing that shale gas has the potential to power economic growth, would provide thousands of jobs and be a new source of domestic energy.
- An independent review by Professor Dieter Helm, one of the UK’s leading energy experts, found that UK households and businesses are paying too much for energy and that costs were higher than necessary to meet carbon targets.
- A government report has detailed that renewable energy made up a record 29% of the UK’s energy mix in Q2 of this year, with clean energy growth coming from a drop in coal output by half to a record low of 2.1%.
- A new report by the Centre for Policy Studies has highlighted that by importing an increasing amount of electricity from Continental Europe, the more vulnerable the UK will become to supply disruptions, sudden price spikes or widening tightening of capacity which in turn pushes prices up. The report forecasted that the UK will receive 67TWh from interconnectors by 2030, a 10-fold increase in the projection made 5 years ago.
Energy - International
- The latest exchange and regulatory data has shown that net positions held by hedge funds in WTI were equivalent to a quarter of a billion barrels, half of that held in Brent. The reason for this is that the oil industry is still adapting to the US shale boom and the rise of US crude supplies, making WTI a less attractive option for expressing a bullish view on the global oil market.
- The US Department of Commerce has imposed anti-dumping duties on Indonesian and Argentinian biodiesel ranging from around 50-70% following the department’s findings that Argentina and Indonesia had sold biodiesel at dumping margins of 54.36-70.5% and 50.71%, respectively.
- As US oil inventories fall (stocks have fallen by 23m barrels since the start of 2017), WTI prices look set to move from contango (future prices are above expected future spot price) into backwardation (future prices are below the expected future spot price), following Brent which is already in backwardation.
- Data from the Energy Information Administration released yesterday surprised analysts with the news that US crude stockpiles built last week (up 900,000 barrels week ending October 20th), whilst gasoline and distillate fuel inventories dropped far more than expected (down 5.5m barrels and 5.2m barrels, respectively).
- Two of the world’s largest oil companies, Statoil (Norway) and ConocoPhillips (US), have reported cuts to their capital spending budgets for 2017. The move supports signs of pressures on the oil industry to improve returns for stakeholders with companies making increasing efforts to “get more for less”.
- According to the Energy Information Administration, US crude exports have reached a record high of 0.9m barrels per day, up 300,000 barrels per day in the first half of 2017. US crude has also been exported to 27 countries this year compared to just 19 in 2016.
- The World Bank has increased its forecast for the price of oil for 2018 by $3 to $56. The increase is as a result of steadily growing demand, the agreed production cuts by exporters and the stabilising of US shale production.
- Brent rose to a high of $59.98 a barrel on Friday afternoon, closing in on the $60 benchmark which has not been breached in over 2 years.
- Tesla has partnered with Vestas to build a $160m project which combines solar, wind and storage in Australia. The project will be connected to the national electricity network by a single connection point and will consist of 43.2MW wind, 15MW solar and 4MWh of battery storage technology.
- Thailand is looking to import more LNG due to the dwindling local output with domestic demand set to rise. Thailand expects a seven fold increase in the amount of LNG it imports via long-term contracts over the next couple of decades, around 35m tonnes per year by 2036, compared to the 5.2m per year today.
- Malaysia and Japan’s state energy companies Petronas and Jera have signed a 3-year LNG supply agreement. The agreement contrasts to traditional LNG agreements which tend to run for decades as a result of the necessity to secure financial commitment to develop projects in a sector where there are restricted destination clauses, and further supports Asian buyers drive to make contracts shorter and more flexible.