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General news

  • A senior Chinese government official has announced that China is looking at putting in place a plan and timeline for the banning of combustion engine cars. In doing so, the Chinese government hope that their automobile sector will be in a strong position to maximise on the EV-boom. China is the world’s largest car manufacturer, producing 28m vehicles in 2016.
  • China, the world’s top importer of waste plastic, has announced it is to ban the importing of waste plastic. To compensate for the loss of recycled plastic, it is anticipated that Chinese imports of products including polyethylene from the Middle East, South Korea, Thailand and Singapore will increase.
  • According to the independent economic and policy research firm TS Lombard, 2017 is set to be the best year for emerging market exporters in 2011. The firm identified that the recovery of commodity prices over the past 12 months and the increase in trading volumes to the fastest pace in almost a decade, are to thank for increased exports.
  • According to the US Energy Information Administration (EIA), growth from non-OECD countries, especially in Asia, will mean that world energy consumption could rise by 28% between 2015 and 2040. The report also highlighted that renewables are set to become the fastest growing energy source (up 2.3% per year between 2015 and 2050), with nuclear being the second fastest (up 1.5% per year during the same period). Fossil fuels are however still expected to account for the majority of the energy mix at over 75% through 2040.

Agriculture

  • US tractor maker John Deere has stated that it believes that weed-spotting algorithms and machinery which can make the spraying of herbicides and pesticides more accurate, is the future of farming. The concept is that enhanced technology and equipment will prevent the need for the blanket use of expensive herbicides and help save farmers money. 
  • China has announced that in an effort to boost the industrial demand for corn and improve its smog-related issues, it plans to roll out the nation-wide use of E10, fuel containing 10% ethanol, by 2020.
  • According to analysts at Reuters, Australia, the “traditional heavy-weight supplier”, has suffered at the hands of the Black Sea region’s record output, higher quality grain and new handling infrastructure. Black Sea exports to Asia reached an all-time August high, with Russia and Ukraine exporting over 2.7m tonnes of wheat to Asia last month, just over 40% of the total 6.55m tonnes that was shipped from the countries in August.
  • As the EU, the second largest importer of Malaysian and Indonesian palm oil, continues to scrutinise the use of palm oil over concerns of its impact on deforestation, Asian producers are being forced to look elsewhere for markets. Palm oil is used in household products, foods, soaps and biodiesel. Malaysian palm oil is currently trading just above MYR2,830.
  • The US Department of Agriculture (USDA) has unexpectedly increased its US corn and soybean harvest forecast, increasing the bullish nature of the markets which are already struggling to cope with global oversupply. CBoT corn and wheat are currently trading at just under $355 a bushel and $444 a bushel, respectively.
  • Cotton prices have fallen after the USDA reported that a “massive crop” was growing despite the damage caused by Harvey and Irma.
    • S&P Global Platts’ East Asian spot LNG index Japan-Korea Marker was 6% up from last week at $6.55/mmbtu, and Asian LNG derivatives for January delivery were 7% up from a week ago to $7.95mmbtu.
    • ICE December futures were down 4.2%, the maximum exchange-permitted drop, to 69.11 cents a pound, completely reversing the previous week’s rally.
    • The report also indicated that Texas cotton fields could end up averaging 757lb per acre of cotton, 17lb per acre more than last month’s estimate.
  • Despite concerns flagged in July that North Korea could face food shortages as a result of fears of droughts and increasing international sanctions, as a result of the late summer rains and increased domestic investment in privately produced crops, it is likely that North Korea will avoid worryingly low crop yields.

Metals

  • Gold has hit a near 3-week low of $1,315, further retreating from its 12-month peak.
  • As China intensifies its environmental clean-up efforts, more and more steel producers are being pushed to use high-grade iron, resulting in the price gap between high-grade and low-grade iron ore reaching a record level. Using high-grade iron enables producers to produce more steel for each tonne of iron that is processed, whilst at the same time reducing emissions thanks to less coke being used in production. High-grade iron ore, containing 69% iron, traded at $75.56 a tonne on Wednesday, a $29.75 premium to low-grade iron ore containing 58% iron.
  • China’s Dalian Commodity Exchange has announced that it is to adjust the quality standards for iron ore deliveries, with the changes coming into play starting with the September 2018 contract. The move comes as the DCE aims to ensure that demand for high-grade iron ore is met.
  • Following a 24% price increase of aluminium as a result of the cuts to production in China, Norwegian aluminium producer Sapa has confirmed they are to reopen a UK-based factory.
    • Sapa had closed the plant, located in Bedwas, Wales, 3 years ago due to the overcapacity of the market, especially in China, which drove prices downwards.
    • The plant is to supply the London Electrical Vehicle Company which makes electric black cabs.
    • Wit h the demand for electric vehicles expected to increase drastically over the coming years, it is likely that demand will be sustained, especially following Uber’s announcement that all its London-based cars will be hybrid or electric by 2012.

Energy - UK

  • The cost of subsidies to UK offshore windfarms in contracts awarded during last week’s auction dropped more than 50%, boosting the UK’s renewables sector. The price of offshore electricity guaranteed to wind developers (£57.50 per MWh) is now much lower than the price of nuclear power generated at Hinkley Point C guaranteed by government (£100/MWh over the first 35 years of the plant’s operation). Supporters of nuclear power however insist that nuclear cannot be compared to intermittent renewables.
  • According to a report published by think-tank Policy Connect and the Carbon Connect forum, converting to a low carbon gas grid could play a vital role in the decarbonisation of the UK’s electricity system. The report highlight biogas, biomethane and hydrogen, amongst others, as low carbon gases of particular interest.
  • According to Green Alliance, the fact that the government has not been following through on its renewable energy policy over the past 2 years and that as a result the delaying of commitment to progress and deployment could end up costing UK consumers £2.6b more per year in 2025.
  • Energy UK has called on the UK government to speed up its progress on developing EV infrastructure, recommending producing a regulatory framework providing certainty for future investment and providing more support for innovation to support infrastructure planning.
  • The UK government is to increase the target for use of renewable fuels in the transport sector. It is to increase the renewable fuel content in petrol and diesel Renewable Transport Fuels Obligation (RFTO) to 12.4% by 2032, with the expectation that in doing so the contribution of renewable energy in the overall transport fuel mix will increase by 1% to 6%.

Energy - International

Oil

  • Refineries along the Texas Gulf Coast continue to restart following Hurricane Harvey. Several refineries are however coming across difficulties during start-up with some facilities still having 2ft of water on-site.
  • International and regional refinery outages are enabling profits on gasoline and jet fuel to continue to rise. As a result of the closure of Europe’s largest refinery (Shell’s Pernis plant, Rotterdam) and the closure of refineries in Texas, it is likely that winter will begin with low stocks. The outages mean that output continues to be outpaced by demand, at a time when stocks of refined fuels are normally being built up ahead of Winter.
  • According to the Energy Information Administration, as a result of suppliers drawing from tank storage to replace the volume lost from refineries having been offline following Hurricane Harvey, petrol inventory has declined by the most on record.
    • Stocks dropped by 8.4m barrels to 218.3m barrels in the first week of September.
    • Price of US petrol was pushed up to $2.685 (on Monday 11th), up from $2.399 two weeks before.
    • The US coast is suffering the sharpest decline in stocks causing drivers to become increasingly nervous, anticipating a price spike, and as a result filling up their tanks – increasing demand by nearly 0.5m barrels per day to 9.6m barrels per day, in the first week of September.
  • The Brent-WTI spread has grown to its widest level in 2 years as a result of the sustained decrease in the amount of crude demand from refiners.
    • As European refiners run at higher rates to compensate for the US shortfall, Brent’s premium reached $5.62 a barrel last Wednesday, compared to the $2-3 range of the past 3 months.
    • If th e reduced US refinery capacity is the main reason for the increased spread, the narrower range should resume. However, the fact that the widening of the spread applies to contracts 12 months in the future indicates that the spread may remain wider for longer.
  • Latest data from the International Energy Agency (IEA) indicates that thanks to higher than expected US and EU demand growth (IEA has increase its global oil demand growth forecast by 0.1m barrels a day to 1.6m barrels per day) and decreased production by OPEC and non-OPEC countries (global output fell by 0.72m barrels in August, the first fall in 4 months), the global surplus of oil is starting to decrease.
  • Nigeria’s minister of state for petroleum resources, Emmanuel Kachikwu, has stated that when the west-African country meets at the end of the month with OPEC and Russia, Nigeria will resist curbs to their production levels. The minister argued that Nigeria needed more time to recover from the years of violent disruption it has been subject to before it would be able to take part in any supply cut deal.
  • Refined fuel prices in North Korea have risen sharply following the country’s sixth nuclear test and the UN imposed new sanctions capping fuel supply. The price of gasoline sold by private dealers in Pyongang jumped 45.1% to $2.51 last week.

Other

  • Swiss traders have stated they are expecting to obtain a $10bn share of the LNG market. This is good news for producers such as Shell and Qatargas who continue to seek emerging markets in order to ease the supply glut.
  • Australian Newcastle coal prices have hit a 2017-high of $81.45 a tonne, thanks to strong demand from Asia, in particular from China. Data indicates that as power companies build up stock ahead of winter, Chinese imports of Australian coal rose to 25.27m tonnes, its highest level since December 2016.
  • As the aftermath of Hurricane Harvey continues to result in a reduced number of LNG cargoes being shipped to Asia, Asian LNG prices have jumped to their highest level in 7 month, to levels last seen in the first quarter of 2017 when abnormally cold temperatures raised demand at a time when global supply was curbed by a liquefaction outage in Australia.
  • Russian Rosneft has secured a deal with Iraq to invest in the country’s gas pipelines in Kurdistan, a move which supports Russia’s ambition of becoming the major exporter of gas to Turkey and Europe. The deal comes ahead of Kurdistan’s independence vote next week.
  • Rosneft has also recently announced that it has signed a 10-year deal with Croatia’s Prvo Plinarsko Drustvo (PPD) to supply Croatia with 1bn cubic metres per year of gas for the next 10 years.
  • The EU has agreed to lower the minimum price for solar panels imported into the EU from China.
  • The French Nuclear Safety Authority (ASN) has ordered EDF, which operates France’s 58 nuclear reactors that supply 75% of France’s electricity demand, to examine all its reactors by the end of 2018. EDF has insisted that the review will not lead to unplanned outages, but there are rising concerns that France could end up facing a second consecutive winter of tight supply.
  • According to the US Energy Information Administration (EIA), natural gas is expected to become the fastest growing energy source through 2040.
    • The report identified the abundance and increasing production of natural gas resources to be the main reason for its growth.
    • Supplies of natural gas included tight gas, shale gas and coal bed methane.