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General news

  • British construction and services company Carillion has collapsed following the refusal of lenders to provide further financial support.
    • The government will be providing the necessary funding to maintain the public services carried on by Carillion staff.
    • Th e UK’s Financial Conduct Authority (FCA) has launched an investigation into the company in connection with the content of announcements made by Carillion between December 2016 and July 2017.
  • Theresa May has pledged to eradicate all avoidable plastic waste in the UK by 2042 and has announced her intentions to impose a 5p tax on single-use plastic bottles.
  • A study from Aston University warns that sales of diesel cars will continue to plunge over the coming years to account for just 15% of the UK market by 2025
    • Sales of diesel cars dropped 17.1% in 2017.
    • Th e study recommends the government take action and set up initiatives and scrappage benefits for those who are willing to trade in their diesel vehicle for an electric model.
  • Canada has filed a complaint with the World Trade Organisation (WTO) accusing the US of breaking international trade rules.

Agriculture

  • The average of the Food and Agriculture’s Organization’s food price index was 8.2% higher in 2017 compared to 2016, despite a drop-off in prices in December which saw prices down 3.3% month-on-month.
    • With dairy prices rising by almost a third the prices of whole milk powder, cheese and butter all achieved notable price increases.
    • Meat prices gained 9%.
    • Cereal prices increased by 3.2%, despite pressure from high inventory levels.
    • Vegetable oil prices increased by 3%.
    • Sugar prices bucked this trend dropping 11% as a result of a bumper harvest in Brazil.
  • An u nexpected bumper arabica coffee crop in the Central American country of Honduras is putting pressure on the commodity’s price outlook.is dampening confidence in the price outlook for the commodity.
    • Having overtaken Ethiopia as the third-largest arabica producer last year, behind Brazil and Colombia, output from Honduras continues to surprise analysts and traders who expected output to decline following 12 months of record output.
    • The prospect of yet another year of strong output from Honduras, as well as from other Central Americ an countries including Nicaragua and Costa Rica, is making the coffee market more bearish.
  • China’s efforts to heat millions of homes using natural gas as opposed to coal has resulted in fertilizer producers finding themselves short of fuel supplies.
    • Urea and ammonia plants halving their operation rates compared to this time last year.
    • The majority of Chinese fertilizer plants are gas-based, and the industry is urging the government to lower gas prices once the winter period is over to alleviate the effects of supply shortages which has led to a shortage of end-product.
  • US ethanol producers are struggling as a result of the cold weather snap which is slowing the turnaround time on rail tanker cars. Producers are also finding themselves facing elevated natural gas prices driven by the same cold weather.
  • Following the release of grain stocks, crop production and winter wheat data from the US Department of Agriculture, corn and wheat futures have dropped. The data showed that 12.5bn bushels of corn and 3.16bn bushels of soybeans were stored after 2017’s autumn harvest, both record volumes.

Metals

  • European steel producers are on track to achieve their best performances since the financial crisis of 2007/8.
    • During the financial crisis Europe’s demand for steel plummeted following the closure of factories across the continent with demand for European steel being further subdued as a result of the availability of cheap imports from China. as companies acted to try and cut costs.
    • The prospects for Europe’s steel industry is however now much more positive thanks to strengthening European demand, successful internal measures and investments by companies to improve efficiency and product quality.
  • It is expected that China’s steel production growth will slow sharply in 2018 as government-mandated factory closures and pro-environmental policies begin to take hold, with output from the world’s largest steel producer likely to see just a 0.6% rise in output in 2018.
  • Copper has had a steady start to 2018 following its end-of-2017 price rally. It is hoped that synchronised growth in 2018 also means a bright outlook for copper. Bank of America Merrill Lynch has introduced a $7,700/tonne price target for the middle of 2018.
  • Gold prices have reached a 4-month high as a result of a weaker dollar, touching $1,327 a troy ounce on the LME.

Energy - UK 

  • The UK Government appears to be looking at maintaining a close relationship with Euratom, the UK’s nuclear body, after Brexit. That’s according to a statement by the UK’s Secretary for Business, Energy and Industrial Strategy (BEIS) who says that the UK aims to maintain a leading role in European nuclear research and to ensure that the UK’s nuclear industry can continue operating.
  • According to the Anaerobic Digestion & Bioresources Association (ADBA) green gas could play an integral role in helping Scotland meet the goals set out in its most recent Energy Strategy. Scotland currently receives around 45MW of power and 11,000 cubic meters per hour of heat from anaerobic generation (AD), with AD plants now having enough capacity to power over a million Scottish homes.
  • INEOS Shale is petitioning for a judicial review of the Scottish Government’s decision to ban fracking. The company is arguing that the ban in unlawful and that there were serious errors in the decision-making process, proper processes were not adhered to and there was a misuse of power.
  • It is estimated that TenneT’s North Sea Wind Power Hub, which is due to open in 2027, could supply clean electricity to up to 80m homes. The hub is to be located on an artificial island in the North Sea and would be able to support wind turbines surrounding it with a total capacity of 100GW. The power generated would then be sent to the Netherlands, UK, Belgium, Denmark, Germany and Norway.
  • Developer VLC Energy has announced that its 50MW battery storage portfolio has now been completed.
    • The portfolio is the UK’s largest utility-scale, enhanced frequency response battery storage portfolio and consists of a 40MW battery park in Kent and a 10MW facility in Cumbria.
    • Sites like these are likely to play an increasingly significant role in managing the UK’s demands on the grid, ensuring customer needs are met and enabling an increase volume of intermittent renewables to be used.

Energy - International

Oil

  • Tom Baxter, a senior chemical engineering lecturer at the University of Aberdeen, has said that there is no environmental reason for removing offshore platforms and that they could instead provide an ideal habitat for marine wildlife. He has said that as opposed to “wasting” tax payer’s money removing decommissioned offshore infrastructure, the facilities should instead be cleaned and left in position.
  • Following MiFiD II, the new set of rules which govern Europe’s financial markets, Intercontinental Exchange (ICE) are planning to move 245 North American oil and natural gas liquids futures options and derivatives away from London-based ICE Futures Europe to its US-based ICE Futures US exchange.
    • MiFiD II came into effect on January 3rd and sets stricter transparency standards on institutions trading in EU-based markets, and also imposes tighter position limits on traders of certain commodities to prevent any trader having an outsized influence on the market.
    • Whilst MiFiD II governs the European markets, US commodity trading is overlooked by the US Commodity Futures Trading Commission, which is less restrictive.
    • Although ICE’s largest North American oil futures (such as those for WTI, heating oil and gasoline) are not “moving to the US”, contracts which are heavily traded by both commercial energy companies and hedge funds are; this includes the Brent-WTI spread contract.
    • ICE listed the  reason for moving these contracts across as a “growth in demand for execution in certain North American energy contracts in the US” as it noticed some energy contract traders beginning to close positions on ICE and open equivalent ones on CME, who last year shut down its comparatively underdeveloped European exchange last year leaving all its contracts under US oversight.
  • Last week saw Brent crude rally to above $70/bbl, the highest level since December 2014. Brent climbed to $70.05/bbl last Thursday, with WTI also achieving its highest price since December 2014 trading at $64.56/bbl. Last week’s gains were predominantly fuelled by a fall in excess crude stockpiles and strong crude demand during the colder months which have offset concerns about the stronger than expected US government forecast for US production.

Other

  • Last week’s cold weather saw a record volume of natural gas storage withdrawal in the US. The Energy Information Administration has reported that gas inventories dropped by more than 359bn cubic feet to below 2.77tn cubic feet last week, leading to regional wholesale gas prices briefly spiking to records above $100 per mBtu.
  • Data shows that China imported record volumes of natural gas in 2017 following efforts to combat pollution levels which has escalated because of decades of rapid industrial growth. Customs data shows that imports increased by 27% to 68.57m tonnes. The increase puts China on track to overtake Japan as the world’s top natural gas consumer.
  • Thermal coal prices have achieved their highest levels since late-2016.
    • Although thermal coal is being phased out in Europe based on its environmental impacts, it still accounts for around 40% of consumption in emerging markets, hence why prices are so closely related to manufacturing data.
    • The benchmark price for the Asian market is Australian coal with an energy content of 6,000kcal/kg and it is currently trading at $103 a tonne, compared to the $80 a tonne seen just six months ago.
  • The US government’s plans to support struggling coal-fired and nuclear plants have been rejected by the US Federal Energy Regulatory Commission (FERC).
    • The FERC anticipates that 74 more coal-fired plants, with a combined capacity of around 20.7GW, will close by the end of 2020.
    • The rejection is a big blow for Trump and his administration who seek to “bring back coal”.
  • The world’s biggest insurers including Axa, Scor and Zurich appear to be taking a renewed stance against coal by refusing to cover miners and generators that use the “black gold”. The primary reason behind this is that industry executives are increasingly worried about the potential for global warming to drive up insurance claims, leading to many insurers becoming increasingly hesitant to cover companies who contribute to the problem.