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General news

  •  Goldman Sachs’ global head of commodities research has said that the company remains bullish for commodities heading into 2018, expecting to generate returns of almost 10%.
  • The Rand Corporation, an influential US think tank, has carried out a study which indicates that post-Brexit, the vast majority of trading relationships between the UK and the EU will be less favourable than if the UK did not leave the EU. The study concluded that a “no deal” Brexit would be the worst option leaving the UK’s economy 4.9% poorer by 2029.
  • 25 EU nations are set to achieve a 70-year-old goal of integrating defences. The move aims to save billions of euros which are currently being wasted as a result of splintered defence policies.
  • EU leaders have formally agreed to start the next phase of Brexit talks.
    • The next phase of negotiations are to agree on a transition period after the UK leaves in March 2019.
    • There appears to be a divide between ministers with many calling for the UK to stick closely to the EU’s single market, whilst others believe more divergence should be sought in order to give the UK more freedom to strike its own trade deals with other countries.

Agriculture

  • China has cut its corn imports forecast for 2017/18 by 500,000 tonnes to 1m tonnes following robust domestic production as a result of a push from Beijing for ethanol to be blended into gasoline supplies.
  • In an effort to cut carbon emissions from road transport, Brazilian senators have passed a bill which proposes a sharp increase in the use of ethanol and biodiesel. The move is considered a win for Brazil’s agriculture sector with the increased use of biofuels expected to double demand for ethanol and biodiesel, produced from sugarcane, in the next 10 years.
  • Malaysia, the world’s second largest palm oil producer, second to Indonesia, has announced its plans to lower its crude palm oil export tax to 5.5% in January, from 6% this month.
  • Chicago wheat futures have risen to a 1-week high on the back of concerns of dry weather impacting the US winter crop. The delayed autumn planting and dry conditions mean that the winter crop is vulnerable to freeze damage. Red winter wheat futures are now on for their third session of gains out of four, with CBoT’s most active contract trading at just above $4.22 a bushel, the highest since the 8th of December.
  • Sugar, coffee and cocoa markets all closed last week lower, extending losses from previous weeks as a result of the expectation of abundant supplies.
    • March raw sugar is currently trading at 13.83 US cents a pound, putting it on track to close 2017 30% down, the biggest annual drop since 1998.
    • March Arabica coffee is trading at 122.00 US cents a pound.
    • London March cocoa prices are currently at £1,425 a tonne.
  • According to CoffeeNetwork, there is likely to be a larger global surplus of coffee in 2018/19 as a result of an “on-year” in Brazil’s biennial crop cycle, and stable production in Columbia and Vietnam.

Metals

  • Australia are seeing a surge in interest in projects which are still several years away from beginning production as a result of battery makers for EVs seeking to secure supplies of cobalt.
    • Australia is “home” to the world’s second largest cobalt reserves, following the Democratic Republic of Congo (DCR).
    • The DCR is however a risky and expensive source of the material with Amnesty International having recently reported that as much as a fifth of the DCR’s cobalt was mined under dangerous conditions involving, at times, women and children.
    • The report has prompted many of the largest automakers, including Volkswagen and Toyota, to pledge to abide by ethical standards when sourcing cobalt for their EVs.
  • Glencore has indicated that battery minerals, especially cobalt, should boost their profits and encourage business growth by the formation of new partnerships.
  • A cobalt supplier which supplies cobalt to companies listed on the LME’s list of firms whose cobalt meets its quality standards have been unable to guarantee that the production of its products did not involve the use of African child labour. China’ Nanjing Hanrui Cobalt supplies to Yantai Cash, a firm which is on the LME’s list of approved firms. Uncertainty about the sourcing of Yantai’s cobalt has resulted in reduced interest in the LME’s cobalt contract.
  • Latest data shows that Chinese aluminium output fell to its lowest levels since February 2015 in November. Exports last month were 2.35m tonnes, down almost 8% from October’s 2.55m tonnes. The drop in exports mirrors the restrictions imposed on China’s aluminium industry to cut production by at least 30% over the winter period.
  • Swiss miner and commodity trader Glencore has announced it plans to restart some of its idled mines to increase its zinc output. Zinc prices have climbed almost 90% since Glencore revealed its production cuts in October 2015.
  • Many analysts believe that Chinese steel demand will be slow in 2018 as a result of its economy reining in stimulus and tightening credit. This, alongside a recovery in supply once the winter production curbs are lifted, could mean bad news for steel prices.
  • Japan’s steel output for the next business year, starting April 2018, is expected to rise slightly from the current year due to firm domestic and foreign demand. The chairman of the Japan Iron and Steel Federation hopes that crude steel output will exceed 10.6m tonnes next year.

Energy - UK 

  • Big Six UK energy supplier EOn is working with Swedish car manufacturer Uniti to develop its own EV. The car, called the Uniti One, is expected to be launched in 2019, and the circa £13,250 price tag will include 5 years of free solar power which EOn says will carry its passengers around 60,000km.
  • According to energy consultancy Inprova Energy, the OPEC-driven increase in oil price over the past few weeks has led to a 10% increase in wholesale energy costs.
  • Last week’s shutdown of the UK’s Forties Pipeline System (FPS) in the North Sea, which sent Brent prices to above $65 for the first time in over 2 years, has also led to gains in UK energy prices.
    • The jump in oil price has led to UK wholesale natural gas prices for same day delivery to jump almost 30% yesterday to their highest since 2013, with the threat of supply shortages further compounded by the sub-zero and snowy weather conditions being experience across the UK.
    • There is a chance that the jump in wholesale oil and gas prices may filter through to consumers over the winter and in turn emphasise concerns about the UK’s aging energy infrastructure and increasing dependency on fuel imports.
  • Following the shutdown of the Forties Pipeline System (FPS), Britain is likely to import gas from a Russian project which is the subject of US sanctions.
    • A tanker from Russia’s Yamal LNG project is expected at the Isle of Grain terminal in Kent, having been diverted from its initial Asian destination.
    • This is likely to be viewed as a “win” by Russia with the UK’s dependence on Russian supply evidence of Europe remaining reliant on Russia gas.
    • The delivery of Russia LNG further highlights concerns about the UK’s energy strategy and supply security; the FPS is 3 years old and has cut off 12% of the gas supply from the UK’s portion of the North Sea.
    • UK gas prices are now at 4-year highs of near 68p/therm, 17% up since the start of the month.
  • European gas prices also found themselves on the up as a result of an explosion at an Austrian gas facility last week.
    • Explosion and fire has ripped through Austria’s main gas pipeline, prompting Italy to declare a state of emergency as flows from strategic sites were shut off
    • The Baumgarten site in eastern Austria takes gas from as far away as Russia and send it to Germany and Italy
    • Gas prices have been sent upwards over concerns of restricted supply as winter sets in with temperatures across Europe being sub-zero and many regions hit with heavy snow
  • It has been announced that as of autumn 2019, British gas will be transported through the BBL pipeline to the Netherlands. Currently, gas only flows from the Netherlands to the UK. It is expected that the change will further strengthen trade between the Title Transfer Facility (TTF) and the British National Balancing Point (NPB), Europe’s two most liquid gas markets.
  • The UK government is to set out new plans to enable remote island wind projects, including those on the Western Isles, Orkney and Shetland, to be included in the Contracts for Difference (CfD) auction. These remote island wind projects have great potential due to strong winds, but they also face greater costs due to their location and transmission requirements.
  • According to a new government report, Wales generated 43% of its electricity through renewables in 2016, up nearly a third from 2016.

Energy - International

Oil

  • Going into 2018 at prices up around 25% since the start of the year, analysts are keeping a close eye on the oil markets.
    • The most recent price hike has been driven by the shutdown of the Forties Pipeline System (FPS); Ineos, the pipeline operator, will be being watched closely to see how quickly and successfully they can get the pipeline back in operation.
    • Whether or not strong economic growth will be enough to sustain demand and consumption growth will also be scrutinised by analysts; as crude prices increase, the affordability of renewables improves, and the numbers of EVs on the road increases, it is understandable how demand-side market drivers remain difficult to anticipate.
    • The anticipated talks in June regarding the termination OPEC-led supply cut agreement will be watched closely; an effective strategy is needed to ensure the market is not suddenly flooded by supply which would in turn undo the price gains achieved by both OPEC and non-OPEC members.
  • The Forties Pipeline System (FPS), the key system which delivers 450,000bpd of the main crude oil underpinning the Brent benchmark, has been shut down to allow for repairs to an onshore section of the line to be carried out.
    • The closure follows the worsening of a hairline crack on the pipeline, which carries almost 40% of the UK’s North Sea oil and gas, near Red Moss in Aberdeenshire over the weekend.
    • It is expected the closure will last for several weeks, with pipeline operator Ineos declaring force majeure. This exempts the FPS from having to fulfil contractual obligations on the basis of causes being beyond their control. Enacting force majeure is uncommon in the North Sea leading many to believe that the issue at FPS is severe.
    • As a result of the closure, Brent prices jumped to a two-and-a-half year high of $65.70.
  • Oil prices remain comfortably above the $60 benchmark with the closure of FPS compounded by a strike by Nigerian oil workers which threaten the African country’s exports. Brent is currently trading at around $63.79 and WTI is at $57.73.
  • The International Energy Agency (IEA) has warned that US shale production will lead to non-OPEC production growing faster than expected next year, delaying the “rebalancing” of supply and demand until late 2018. The warning follows a pickup in US drilling and completion rates with prices rebounding over the past few weeks.

Other

  • Japan’s Jera and France’s EDF have agreed to integrate their LNG gas trading operations to create a leading player in the LNG market. The move supports Japan’s ambition of increasing its presence in global LNG trading.
  • The World Bank has pledged to stop financing oil and gas projects as of 2019. The exception to this will be in instances where the benefit of energy access for the poor is evident, or the project aligns with the country’s commitments to the Paris Agreement.
  • According to the IEA global coal demand is likely to be subdued over the next 5 years, growing just 0.5% per year, as a result of lower demand from China and the continued surge in renewables and efficiency improvements.