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LME Week London 18 oktober 2012

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Handelsbanken - Råvarubrevet inklusive ädelmetallerHemma efter årets LME-vecka sammanfattar vi diskussioner över middagar och presentationer. 135 år gammal står fortfarande Londons metallbörs för 85 % av handeln med basmetaller och handeln under september månad var den största någonsin. LME veckan är traditionellt metallhandlarnas tid att underhålla sina kunder. Industrin använder LME-veckan som förhandlingsstart för nästa års smält- och rafflöner. Tusentals metallhandlare samlas i London för att träffa industrirepresentanter med förhoppningen att öka förståelsen för vart marknaden ska ta vägen. Sällan har dock koncensus syn på marknaden varit så tight som i år.

Låga räntor skickar in pengar i metaller vilket gjort att nickel stiger när FeCr faller

Räntor, metaller, nickel, FeCr

Effekterna av lagerhusens köer

Den första lagerfrågan är tillgång till metall från LME:s lager. Frågan var högt på agendan redan förra året men situationen har eskalerat sedan dess. Lagernivåerna för LME metallerna har trendat uppåt under året men simultant har de fysiska premierna (den avgift man får betala ovanpå börspriset för att få ut fysisk metall) stigit. Nuvarande höga premier för zink, aluminium och bly indikerar att tillgången till fysisk metall är begränsad. Kötiden för att få ut metall ur vissa LME-hus är över ett år. Situationen har förvärrats i kölvattnet av QE och Fed policyn att hålla räntorna låga till 2015. Låga räntor gör det extremt billigt att finansiera metall i lager och mycket metall är bunden i finansiella positioner. Synen på hur detta påverkar prisbilden debatterades kraftfullt. LME:s Martin Abbott förekom frågorna med beskedet att man ”tillsatt en utredning” vilket fick mycket ljummen respons.

Låga lager i värdekedjan

Den enskilt viktigaste diskussionen för nästa års prisbild för metallerna var, i våra ögon, lagernivåerna i tillverkningskedjan. Flera rapporter har slagit fast att lagren av metallintensiva varor är höga i Kina men tillgänglig statistik och anekdotiska bevis från de som varit där i närtid tyder på att lagernivåerna är låga efter att ha nått sin topp under 2012 kring det kinesiska nyåret. Detta är speciellt påtagligt för koppar som är den metall som drivs mest av kinas utveckling. Lägre lönsamhet i de kinesiska bolagen och starka intressen att minska arbetande kapital har minskat lagernivåerna i Kina (och Europa) under året. Appropå Kina så diskuterades som vanligt det stundande ledarskapsskiftets inverkan på den kinesiska efterfrågan. Wang Qing från CICC adresserade problemet med kommentaren ”med mindre än en mer avslappnad policy kring fastighetssektorn så kommer återhämtningen att vara svag”

Nästa års smält- och rafflöner

Diskussionen om kommande smält och rafflöner var ursprunget till LME veckan. Numera får dessa diskussioner mycket lite utrymme. Åtminstone bland de finansiella aktörerna. På sidolinjen till konferenserna står dock fortfarande de fysiska aktörerna och diskuterar. Vårt intryck är att både koppar och zink kommer att se högre TC/RC under 2013. För koppar är det kommande överskottet på koncentrat skälet. För zink beror det på att Kina förväntas importera mindre koncentrat i spåren av en inbromsande ekonomi och expanderande gruvproduktion av zinkkoncentrat vilket skapar större överskott i väst samtidigt som de kinesiska smältverken förlorar pengar på nuvarande nivåer och behöver högre smält och rafflöner.

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10 % högre TCRC för zink verkar vara koncensus.

Kontentan av årets LME är att alla väntar på vad som ska hända i Kina efter ledarskapsskiftet. De presentationer som gavs var alla slående lika till innehållet; Kina, Eurokrisen och USA:s fiscal cliff dominerade utan att ge något banbrytande på endera tema.

Högst på agendan fanns lagerproblemen

Redan under förra årets LME vecka diskuterades problemet med längre och längre köer för att få ut metall ur LME:s lagerhus. Nu när situationen blivit ännu värre var frågan bland de mest diskuterade. (En industriell aktör säger sig ha fått beskedet att behöva vänta 1 år på att få ut aluminium ur LMEs lagerhus i Detroit). En annan het lagerfråga var de låga lagernivåerna av metall och metallvaror i värdekedjan under 2012. Vidare diskuterades den pågående euforin på finansmarknaden kontra de dystra utsikterna för den fysiska marknaden.

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Inbromsningen och ledarskapsskifte i Kina, debaclet i Europa och den ovanligt tysta fysiska marknaden var stående samtalsämnen. Sist men inte minst fick den verkliga huvudfrågan fokus: TC/RC för koppar väntas stiga något under 2013 i spåren av begynnande koncentrat- överskott från stigande gruvproduktion medan zinkgruvor och smältverk verkar stå ganska nära varandra och endast små justeringar uppåt för TC/RC är att vänta för 2013.

Har finansmarknaden prisat in för mycket i metallerna?

Ännu en gång är avvikelsen mellan den fysiska och finansiella marknaden för basmetaller påtaglig, när en svag fysisk marknad står i kontrast till det rally som ägt rum på LME sedan QE annonserades. Fler pengar jagar nu samma tillgångar och en del av QE pengarna söker sig in i basmetaller. Särskilt uppenbart är det på marknaden för rostfritt stål där den finansiellt handlade legeringsmetallen nickel dragit i väg med 10 % under september medan den icke finansiellt handlade krom har fallit i pris.

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Analys

Crude oil comment: Lack of clear direction

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SEB - analysbrev på råvaror

This week, Brent crude prices have declined by USD 2.3 per barrel (2.8%) since Monday’s opening, driven by fundamental market factors. The current price is near its weekly low at USD 81.8 per barrel, down from Monday’s high of USD 84.5 per barrel.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

The price has fallen by nearly USD 1 per barrel since yesterday afternoon. This week’s downward trend can be attributed to three main factors:

1. Upcoming OPEC+ Meeting:

OPEC+ is scheduled to meet on June 1st for the Joint Ministerial Monitoring Committee (JMMC). Initially planned as a physical meeting in Vienna, it will now be fully digital, suggesting no major discussions or changes. We anticipate that the meeting will result in the extension of current production cuts into Q3 2024. OPEC+ aims to signal a tight yet well-supplied market, maintaining the status quo and minimizing significant market reactions.

2. U.S. Inventory Report:

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Wednesday’s U.S. inventory report had a bearish impact on the market, showing a build in commercial crude inventories (excl. SPR) by 1.8 million barrels, contrary to the expected 1.9-million-barrel draw. This was slightly more bullish than the American Petroleum Institute (API) forecast of a 2.5-million-barrel increase released on Tuesday.

Commercial crude inventories now stand at 458.8 million barrels, about 3% below the five-year average for this time of year. This build is counter-seasonal, as we usually see a draw at this time of the year. Gasoline inventories decreased by 0.9 million barrels, less than the anticipated draw of 1.2 million barrels. Distillate (diesel) inventories increased by 0.4 million barrels, against a consensus expectation of a 0.3-million-barrel draw, further defying typical seasonal trends and adding a bearish tone to the market, even though they remain about 7% below the five-year average. Overall, total inventories (crude + gasoline + distillate) rose by 1.3 million barrels.

Additionally, U.S. crude oil refinery inputs averaged 16.5 million barrels per day last week, an increase of 227 thousand barrels per day from the previous week. Refineries operated at 91.7% of their operable capacity, the highest since mid-January, as they ramp up following maintenance. Gasoline production averaged 10 million barrels per day, while distillate fuel production averaged 5.1 million barrels per day. A marginal improvement in refinery margins indicates healthier demand prospects leading into the driving season.

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3. FOMC Minutes and Economic Concerns:

The continued decline in oil prices can also be attributed to bearish pressure from hawkish Federal Open Market Committee (FOMC) minutes, which raised concerns about persistent inflation. This could result in prolonged higher U.S. interest rates, potentially limiting future oil demand growth.

In summary, the combined effect of the upcoming OPEC+ meeting, the U.S. inventory report, and economic concerns highlighted in the FOMC minutes has contributed to the weakening of Brent crude prices this week.

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Analys

German solar power prices are collapsing as market hits solar saturation

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SEB - analysbrev på råvaror

German solar power producers got a price haircut of 87% over the past 10 days. German solar power producers have over the past 10 days received a volume weighted power price of only EUR 9.1/MWh. The average power price during non-solar-power-hours was in comparison EUR 70.6/MWh. Solar power producers thus got an 87% cut in the power price they get when they produce vs. the power price during non-solar-power-hours. This is what happens to power prices when the volume of unregulated power becomes equally big or bigger than demand: Prices collapse when unregulated power produces the most.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Massive growth in solar power installations in Germany in 2023 is leading to destruction of solar hour prices and solar profitability. Germany installed a record 14,280 MW of solar power capacity According to ’PV Magazine International’. That is close to twice as much as in 2022. Total installed solar capacity reached 81.7 GW at the end of 2023 according to ’Renewables Now’. Average German demand load was in comparison 52.2 GW. So total solar capacity reached almost 30 GW above average demand. Solar power produces the most during summer when demand is lower. The overshoot is thus much larger than the 30 GW mentioned when it matters.

The collapse in solar-hour-power-prices implies a collapse in solar power producer earnings unless the earnings of the installations are secured with subsidies or by PPAs. It also means that there is a sharp reduction in the earnings potential for new solar power projects. The exponential growth in new installations of solar capacity we have seen to date is likely to come to an abrupt halt. There is however most likely still a large range of solar power projects under construction in Germany which will be finalized before growth in new capacity comes to a halt. The problem of solar power production curbs (you are not allowed to produce at all) and solar power price destruction is likely to escalate yet higher before new growth in supply comes to a halt. 

Focus will now shift from solar production capacity growth to grid improvements, batteries and adaptive demand. All consumers are of course happy for cheap power as long as they are able to consume it when it is cheap. At the moment they can’t. But the incentive to be inventive is now super high. The focus will now likely shift from solar power production growth to grids, batteries, adaptive demand and all possible ways to utilize ”free power”. This will over time exhaust the availability of ”free power” and drive solar-hour-power-prices back up. This again will then eventually open for renewed growth in solar power capacity growth.

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It is probably much worse down in the grid. What is worth noting is that these numbers are for all of Germany average. Solar power congestion is much worse in the local grids all around Germany along with local grid capacity constraints ect.

The problem of solar power is high concentration of production: 80% of German solar production was produced during 22.3% of the hours in the year in 2023. What is also worth mentioning is that solar power production is extremely concentrated in relatively few hours per year. It produces in the middle of the day and during summer. In 2023 German solar power produced 80% of its production in only 22.3% of the hours of the year. This basically implies that once solar power production reaches 22.3% of total power supply (without batteries), then solar-hour-power-prices will likely collapse. Solar power production reached 55 TWh in 2023. That’s a lot but it is still only 12% of total demand of 458 TWh in 2023. What it means is that the acute problem of solar-hour-power-price-destruction sets in much before the ”theoretical 22.3%” mentioned above.

On the 21 Feb 2024 we wrote the following note on this issue: ”The self-destructive force of unregulated solar power” where we highlighted these issues and warned that this will likely be a process of ”First gradually. Then suddenly”.

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German solar power capacity makes a big leap upwards in 2023 as the energy crisis hurt everybody. Demand went down. Now there is a large overcapacity in installed solar effect vs. demand load.

German solar power capacity makes a big leap upwards in 2023 as the energy crisis hurt everybody. Demand went down. Now there is a large overcapacity in installed solar effect vs. demand load.
Source: SEB calculations and graph, PV Magazine, Wikipedia, Blberg data on German power demand

German solar power producers got an 87% price haircut on average during last 10 days vs. those who produced during non-solar-power hours.

German solar power producers got an 87% price haircut on average during last 10 days vs. those who produced during non-solar-power hours.
Source: SEB calculations and graph, data by Blbrg

Volume weighted solar power prices vs. non-solar-hours. Bigger and bigger discount.

Volume weighted solar power prices vs. non-solar-hours. Bigger and bigger discount.
Source:  SEB calculations and graph, data by Blbrg

Volume weighted solar power prices vs. non-solar-hours. Bigger and bigger discount.

Volume weighted solar power prices vs. non-solar-hours. Bigger and bigger discount.
Source: SEB calculations and graph, data by Blbrg

Solar power production and German power prices over the past 10 days.

Solar power production and German power prices over the past 10 days.
Source: SEB calculations and graph, data by Blbrg

Solar power production and German power prices on 27 April 2024.

Solar power production and German power prices on 27 April 2024.
Source:  SEB calculations and graph, data by Blbrg
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Analys

Firm at $85

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SEB - analysbrev på råvaror

This week, Brent Crude prices have strengthened by USD 1.2 per barrel since Monday’s opening. While macroeconomic concerns persist, market reactions have been subdued, with price fluctuations primarily driven by fundamental factors. Currently, the oil price stands at its weekly high of USD 84.4 per barrel, with Wednesday’s low recorded at USD 81.7 per barrel, indicating relatively normal price movements throughout the week.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

The upward trajectory since Wednesday afternoon can be attributed to two main factors:

Firstly, Wednesday’s US inventory report, though mixed, conveyed a bullish sentiment to the market due to an overall decline in commercial inventories. The report from the US Department of Energy (DOE) revealed a draw in US crude inventories of 1.4 million barrels last week, surpassing consensus estimates of a 2.0-million-barrel draw –  the American Petroleum Institute’s (API) forecast of a 0.5-million-barrel build on Tuesday.

Additionally, a marginal improvement in refinery margins hints at healthier demand prospects leading up to the driving season. While commercial crude oil inventories (excluding Strategic Petroleum Reserve) decreased, standing approximately 3% below the five-year average for this period, total gasoline inventories saw a notable increase of 0.9 million barrels compared to the consensus forecast of a decrease of 1.1 million barrels. Distillate fuel inventories experienced a more moderate increase in line with expectations, rising by 0.6 million barrels but remaining approximately 7% below the five-year average. Overall, total inventories (crude + gasoline + distillate) showed a marginal increase of 0.1 million barrels, coupled with a 1% improvement in refinery utilization to 88.5% last week (see pages 11 and 18 attached).

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The substantial draw in commercial crude inventories, particularly compared to the typical seasonal build, has emerged as a key price driver (see page 12 attached).

Secondly, the third consecutive day of oil price gains can be attributed to renewed optimism regarding US rate cuts, supported by positive US jobs data suggesting potential Federal Reserve rate cuts this year. This optimism has boosted risk assets and weakened the dollar, rendering commodities more appealing to buyers.

In a broader context, crude oil prices have been moderating since early last month amidst easing tensions in the Middle East. Attention is also focused on OPEC+, with Russia, a key member, exceeding production targets ahead of the cartel’s upcoming meeting. Expectations are widespread for an extension of output cuts during the next meeting.

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Conversely, providing support to global crude prices is the Biden administration’s intention to increase the price ceiling for refilling US strategic petroleum reserves to as much as USD 79.99 per barrel.

With geopolitical tensions relatively subdued, but lingering, the market remains vigilant in analyzing data and fundamentals. Our outlook for oil prices at USD 85 per barrel for 2024 remains firm and attainable for the foreseeable future.

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