Check back on Thursday for a full picture of what the implications of Hurricane Harvey have been on an international scale.

General news

  • Last week’s news headlines were dominated by increasing global tensions with North Korea and their nuclear weapons and missile testing.
    • Tensions started building last Monday, North Korea launched a ballistic missile over the Japanese island of Hokkaido. in A move which has been termed an unprecedented threat to Japan.
    • The increased tensions were felt in the markets with gold spiked to its highest level since the US election (up 0.9% to $1,322.41/t oz.) on Tuesday. Meanwhile, the South Korean Kospi (Korea Composite Stock Price Index) fell 0.1% to 2,334.34, the Japanese Topix (Tokyo Stock Price Index) dropped 0.4% to 1591.82 and the Yen, a safe haven asset, strengthened 0.8% against the USD to Y108.34, the highest level since mid-April.
    • Tensions ratcheted higher over the weekend following indications from South Korea that they are seeing signs that North Korea is preparing more missile launches and claims by North Korea that they have successfully tested a hydrogen bomb small enough to fit in a long-range missile.
    • The US  Defence Secretary has already threatened to answer “with a massive military response” if North Korea strikes any of its territories, and the UN Security Council has met to discuss how to respond.
    • It is likely that the US will ask to China to impose damaging economic sanctions on North Korea, most notably in cutting off its supply of crude oil which North Korea depends on.
  • Meanwhile Houston and its major oil refineries continued to reel from the impact and aftermath of Hurricane Harvey, which made landfall on the Texas coast over a week ago.
    • In addition to disruption to oil and gas facilities and supply, Harvey hampered the ability of ships carrying merchandise to Houston, the US’s 8th largest container port, as port officials were forced to temporarily close container terminals lunchtime on Friday.
    • There are fears that the extent of the damage caused by Harvey could temporarily dent US growth because of lowered consumer spending and a rise in unemployment.
    • Focus is now on the recovery and long-term damage left in the wake of the hurricane, as well as concerns that Hurricane Irma which is building strength in the Caribbean could also make landfall later this week.
  • According to a new UK government sponsored study, despite a 76% to 84% increase in public belief that climate change is linked to human actions over the past 6 years, the motivation of citizens to drive greener and less polluting cars has hardly changed. The study put this down to the fact that the general public still value personal convenience over “saving the environment”.
  • Ford have announced they are partnering-up with the German postal service to build a batter-electric delivery van.
  • Theresa May has announced her ambition to remain as Prime Minister beyond the next general election. Some Conservative backbenchers have however publicly declared they are against her leading their party into the next UK general election.
  • The EU has rolled out Real Driving Emissions (RDE) tests. These are tougher car emission tests which new cars must pass before being allowed on the market and will be phased in for all new cars between 2018/19.
  • Renault-Nissan have confirmed their partnership with Chinese car manufacturer Dongfeng Motor Group to sell electric vehicles in China. The joint venture is called eGT New Energy Automotive Co.

Agriculture

  • According to figures from the UK tax service, thanks to increased exports to non-EU countries, particularly to the Asian market, UK exports of beef, lamb and pork are up 18% in H1 2017 compared to H1 2016. Further positive news for the UK beef industry also comes as a new export deal has been struck with the Philippines.
  • According to the International Grains Council ending stocks of wheat in 2018 are projected at a record 248m tonnes, up 7m tonnes from July’s forecast, thanks to an increasingly favourable outlook for Russia where wheat and barley results continue to exceed expectations. If this projection is realised, it would make the 2018 carryover significantly higher than that the 206m and 226m experienced in 2015 and 2016, respectively.
  • Although the majority of last week’s Hurricane Harvey headlines focused on the impact that storm had on the US energy sector, the agricultural sector and its markets also fell victim to the storm. Fears over damage to the US cotton crop helped drive price of December delivery cotton up 2.6% to 69.89c/lb  Flooding in Texas, the US’s top cotton producer responsible for 50% of US production, could impact on this year’s harvest. Initial concerns regarding the effect on crops and export logistics have however now subsided with the CEO of global commodities trader Cargill Inc stating he expects the “impact on freight and logistics of agriculture products coming down the Mississippi River into the port of New Orleans” to be minimal.
  • In an effort to help ensure demand for cotton from cotton spinning firms is met, China have announced that trading firms will not be allowed to buy cotton from its national reserves this month. This announcement pushed Chinese Cotton No 1 prices up 3.82% to $2,428.19, enabling the contract to achieve its highest price in 3 months and biggest daily gain in over a year.
  • The Indonesian government has announced a replanting plan for 4.7m hectares of palm trees, plantation across the country in an effort to boost productivity. Malaysian palm oil is currently trading at currently trading at MYR2,680.
  • At the start of last week, markets indicated that corn was set for its biggest monthly fall in almost 3 years as it lingered near a 9-month low as a result of abundant global supplies. The market however turned around on Friday with corn achieving its first weekly gain in over a month, closing at $340 a bushel, thanks to strong Chinese economic data and signs that overseas demand for US corn remains strong.
  • Latest data from Cargill indicates that Brazil is expected to have exported 5m tonnes of corn last month, approximately a seventh of the estimated 35m tonnes it is expected to export this year. These latest figures indicate that Brazil is set to account for 50% of global corn exports between now and January 2018.
  • President Xi authorised an increase in the number of Brazilian meatpacking plants that are allowed to export to China this week
  • Preliminary estimates indicate that Kansas, the top US wheat producing state, could suffer substantial yield losses next year as a result of a virus which cost the region nearly 6% of its 2017 production. It is believed that the virus could have resulted from farmers not spending money or herbicide in an effort to mitigate the effects suffered by low wheat prices. Kansas City wheat closed August trading at $409 per bushel.

Metals

  • Due to substantially higher than normal demand from Japanese buyers for Chinese silicon metals in Q4 and tight availability, Chinese silicon metals hit their highest level since November 2014. Silicon metals are used in the manufacturing of steel, solar cells and microchips.
  • According to a new report by Grand View Research Inc, the global automotive metals market is expected to reach $129.33bn by 2025. The growth in this market comes as a result of increased demand for vehicles (78.2m units in 2011 to 93.9m units in 2016) as well as increasing regulatory policies which have led to increased focus towards the production of lightweight and more fuel-efficient cars which in turn increases the demand for aluminium, magnesium and high strength steel. The automotive metals market is however expected to experience restrained growth because of the high cost of certain metals which is driving the use of plastics (e.g. polypropylene, polyurethane and polyethylene) as an alternative material for certain components.
  • The LME has announced it is considering the possibility of starting a lithium contract to benefit from the electric car boom which is expected to drive lithium demand up fourfold by 2025. This contract would give investors further exposure to growth in electric vehicles. There are few details so far as to the specifics of the contract but it is believed that the contract would be tied to lithium carbonate concentrate and/or lithium hydroxide.
  • After months of dispute it has been confirmed by the Indonesian Ministry of Energy and Mineral Resources that Grasberg, the world’s second largest copper mine owned by US miner Freeport-McMoran, will keep operating until 2041 thanks to the agreement that Indonesia, where the mine is located, will be entitled to 51% ownership.
  • Uranium prices are at their lowest levels in more than a decade (last traded at $20). The price of uranium has been in decline since the Fukushima disaster in 2011 which pushed governments to scale back nuclear programmes. This scaling back in turn decreased demand for the radioactive material but many advocates of nuclear energy believe that to meet climate change goals and cope with the likely increase in demand from the electric vehicle boom, nuclear energy is the only “scalable answer”. There is hence the potential that uranium prices are likely to be supported over the coming years.

Energy

UK

  • According to the Energy and Climate Intelligence Unit (ECIU), the scrapping of energy efficiency standards for household appliances post-Brexit could result in household electricity bills increasing by £90/yr because of cheaper, but less efficient models of lightbulbs and appliances being allowed into the market.
  • There is a new customer-owned entrant to the UK’s energy supply market. People’s Energy which was set up by a crowdfunding couple, prides itself on having only one tariff and supplying 100% renewable electricity, and currently has 4,500 customers with the aim of achieving 1m customers by 2024.
  • According to data from Aurora Research, coal power made its smallest contribution to the UK electricity grid in 135 years, contributing only 2% of July’s energy. The report identified that gas-fired power made up 40% of Britain’s energy and that nuclear and renewables accounted for 32% and 18% respectively.
  • The UK government has committed £11m to bringing electric busses to the UK. 153 cleaner buses are expected to be bought across Bristol, York, Brighton, Surrey, Denbighshire, and Wiltshire.
  • Research by Reuters has highlighted the necessity of the UK to invest billions into new power plants, grid networks and electric vehicle charging points to avoid local power shortages when the ban on petrol and diesel vehicles comes into play.
    • The report highlights that supporting millions of new EVs is technically feasible but that infrastructure costs are likely to be very high.
    • Challenges which need addressing include generating the capacity needed, strengthening the distribution grid and developing the charging infrastructure needed.
    • Experts  estimate that despite some conventional vehicles remaining on the UK’s roads, the number of EVs in the road could escalate from around 90,000 today, to 20m by 2040.
  • The Chinese Nuclear Group, who own a third of the Hinkley Point C nuclear power station, have reiterated that they remain confident that the UK government will approve a new plant, proposed to be built in Bradwell, Essex. The group claim that the proposed HPR1000 nuclear reactor is “mature and economically efficient” and that the Hinkley Point C delays and over-budget costs are not a concern or threat to the project.

 

International

Oil

  • Hurricane Harvey has had a severe and potentially long-lasting impact on petrochemical commodities in the US Gulf, with the effects of the storm filtering into international energy markets.
  • Chinese news agency Xinhua has announced that the independent Chinese oil refineries which are clustered in Shandong, a coastal province in eastern China, will consolidate into one corporate group.
  • French oil company Total has had its application to drill near the Amazon Rainforest rejected by the Brazilian Environmental Agency.
  • As a result of outages in Libya due to renewed unrest and other OPEC members “stepping up” compliance to the production-cut deal, OPEC output for August fell by 170,000 BPD to 32.8m BPD. The drop puts OPEC’s compliance to its pre-agreed output cut levels to 89% compliance rate, a 5% improvement from July.

Other

  • The US Department of Energy has announced that it is to provide $50m to improve coal-fired energy systems. The money will fund large scale pilots to design, construct and operate new coal technologies to improve performance and efficiency whilst reducing emissions and the cost of electricity. Appalachia coal (central) is currently trading at $52.60 per tonne.
  • Data from Green Energy Markets reveals that last financial year Australia produced enough renewable energy to power 70% of Australian homes. The research also found that once the wind and solar projects which are currently under construction this year are finished, the demand of 90% of homes could be met by renewables.
  • As the Gulf States become increasingly interested in nuclear power as they look to move away from reliance on domestic oil production, Oman has announced it has agreed to invest up to $120m in the Spanish Salamanca uranium mine capable of producing an average of 4.4bn pounds of uranium a year once in operation. The Sultanate of Oman’s sovereign wealth fund has the option of acquiring 37% of Berkeley Energia who are developing the mine which is due to start production in 2019, giving them the rights to the mine’s offtake.
  • Researchers have achieved 35.9% solar efficiency in a new technology, a new solar efficiency record. The silicon-based triple-junction solar cells achieve a much high efficiency than the 10-20% efficiency most current domestic models have.
  • Brazil has announced it will cancel 25 renewable energy projects as a result of the firms responsible for these projects struggling financially. 16 wind and 9 solar farms have been scrapped.
  • The construction of a wind farm, expected to be able to produce enough energy to supply up to 40,000 homes with renewable energy from 2019, has begun in Germany. The Arkona wind project is to be built in the Baltic sea and consist of 60 6MW turbines.