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SEB Jordbruksprodukter, 9 augusti 2012

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SEB Veckobrev Jordbruksprodukter - AnalysMarknaden avvaktar fredagens WASDE-rapport. Rörelserna blir säkerligen stora på fredag. Har man positioner i terminer eller i oprissäkrat spannmål att köpa eller att sälja, ska man nog vara beredd på att agera snarast efter att rapporten släpps klockan 14:30 på fredag.

Gårdagens ministermöte i Ryssland med syfte att diskutera ”food security” gav följande resultat: vice statsministern Arkady Dvokovich sade för det första att man håller fast vid sin prognos om en spannmålsskörd på 75 – 80 mt. För det andra sade han att det inte fanns någon anledning att begränsa exporten. Vi tror, på goda grunder, att skörden av spannmål totalt hamnar på högst 66 mt och motiverar detta mer i detalj nedan.

Teknisk analys av framförallt vete och majs indikerar att priset kan bryta upp efter att ha konsoliderats i två veckor. Vi anser att risken alltjämt är på uppsidan i spannmålspriserna och i oljeväxterna. De senaste två veckornas lugn tror vi får ett abrupt slut senast på fredag klockan 14:30.

Förväntningarna på WASDE-rapporten

Nedan ser vi marknadens förväntningar på WASDE-statistiken som publiceras på fredag klockan 14:30 svensk tid. Alla siffror är i miljoner bushels. Marknaden kommer att fokusera på majs och sojabönor och på vilken sida siffrorna hamnar i förhållande till de väntade, kommer att avgöra åt vilket håll priserna på dessa – och vetepriset rör sig.

Förväntningar på WASDE-statistiken

Förväntningar på WASDE-rapporten

Odlingsväder

Southern Oscillation Index har tagit sig upp till neutrala förhållanden igen, men det anses vara temporärt, eftersom de flesta prognosmodeller pekar på att ENSO ska vara nära El Niño-förhållanden, dvs med SOI närmare eller lägre än -8.

Australien - Southern Oscillation Index

Australiensarnas prognos för ENSO pekar som vi ser nedan på att El Niño kan utveckla sig under hösten, men att det än så länge är osäkert. ENSO surfar precis på gränsen till El Niño. Nedan ser vi den allra senaste ensembleprognosen, som just publicerats.

ENSO surfar precis på gränsen till El Niño

Om vi jämför den med förra månadens ser vi att sannolikheten för El Niño har minskat något. Ingenstans framåt i tiden ligger den senaste ensembleprognosen på ”El Niño”-territorium. Det gjorde den för en månad sedan.

Diagram för NINO34

Vete

Ukraina har i princip skördat färdigt. I Ryssland väntas mer nederbörd. Australiens veteodlingsområden har 60%-80% mindre nederbörd än normalt och man oroar sig där för att tendensen till El Niño ska stärkas. Det motsatta gäller i Argentina. Argentina har haft riklig nederbörd, men prognosen är att det ska bli torrare efter helgen.

I Europa har det kommit in torrare väder, utom som bekant i norra Europa. Som berört ovan ledde inte gårdagens ministermöte om ”food security” i Ryssland till ett exportstopp. Men det utesluter inte att det ändå kan komma. En del menar att det är uteslutet att Ryssland inför exportstopp eftersom de nu är medlemmar i WTO. Det finns dock inte något som hindrar att Ryssland ändå inför någon typ av exportbegränsning eftersom dessa är tillåtna under vissa förhållanden och dessa bestäms av landet självt. Den som tvivlar på detta kan läsa själv på WTO:s egen hemsida.

Som nämnt ovan sade vice statsministern Arkady Dvokovich att skörden blir 75 – 80 mt. Det tror vi inte alls på. Vi tror att total spannmålsskörd hamnar på 66 mt. Per den 3 augusti låg hektarskörden 30% under förra årets. Skörden förra året uppgick till 94 mt och 0.7 x 94 = 65.8 mt. Hektarskörden i Volgaregionenväntas bli 50% lägre än förra året. Vartefter skörden flyttar sig norrut, sjunker hektarskörden. Vi kommer osökt att tänka på Winston Churchills beskrivning, som fast ständigt aktuell, passar särskilt bra här: ”I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.”

Vi vet inte, men vi gissar att Ryssland kommer att införa någon slags exportbegränsning för att få det här att gå ihop. Det är den enda logiska slutsatsen. Detta kommer att trycka upp priserna ännu mer. Förra veckans nyhet om att den amerikanske jordbruksattachén i Kina uppskattade att Kinas veteskörd skulle bli 8 mt lägre än USDA estimerade i juli gick spårlöst förbi i marknaden.

Frankrikes jordbruksdepartement höjde skördeestimatet till 36.7 mt (+0.8 mt). Det är 2.7 mt mer än förra året.

Matifvetet med novemberleverans har format en ”bullish” triangel. Triangeln bildas av att topparna sjunker och bottnarna stiger. Efter den här typen av prisuppgångar som har varit brukar en triangelformation vara en konsolideringfas inför en ny våg av prisuppgångar. Mot bakgrund för det första av risken för en dålig rapport från WASDE på fredag och Rysslands av allt att döma falska uppgifter om hur stor skörden väntas bli i landet, pekar det mesta väsentliga fundamentala informationen vi har, i samma riktning som den tekniska analysen. Vi är inte tvärsäkra, och det är bäst att avvakta och se och sedan försöka vara bland de första som agerar, men det mesta tyder på att priset kommer att fortsätta uppåt.

Bullish triangel för Matif-vete

Nedan ser vi Chicagovetet med leverans i december. Vi ser samma triangelformation, som är bullish, i det här diagrammet.

Chicagovetet med leverans i december

Nedan ser vi prisskillnaden mellan Chicagovete med decemberleverans och Matifs novemberkontrakt. Chicagovetet är omräknat till euro per ton. I den nedre delen av diagrammet ser du kvoten mellan Chicago och Matif. Vi ser att Chicago dragit ifrån Matif och att premien just nu är 3.68%. I början på maj var Chicagos decemberkontrakt 10% billigare än Matif. Detta gör att det finns en potential för Matif att gå upp i pris, bara för att komma ikapp. Ett ryskt exportstopp skulle se till att detta hände.

Prisskillnaden mellan Chicagovete med decemberleverans och Matifs novemberkontrakt

Nedan ser vi hur terminspriserna på Matif och Chicago förändrats den senaste veckan. Backwardation är kraftigare på Matif än i Chicago. Allt annat lika, om man vill prissäkra, får man högre pris på Chicagobörsen. Vill man köpa terminskontrakt med leverans 2013 eller 2014 bör man göra det i Matifkontrakten. Eventuellt kan det vara intressant att handla dem mot varandra.

Terminskurvor för vete den 8 augusti 2012

Maltkorn

Novemberkontraktet på maltkorn ligger i en nedgångsfas som har stora likheter med vad som i efterhand ofta identifieras som en rekyl inför en ny, kraftig prisuppgång.

Maltkorn - Priset i nedgångsfas

Potatis

Potatispriset för leverans nästa år har gått upp över 16 euro och tangerar högstanoteringen 17 euro per deciton. Vi skrev förra veckan om intervallet 14 – 16. Att priset nu gått till 17 innebär ändå inte att intervallet är överspelat. Men skulle priset orka gå över 17 euro är intervallet brutet. Det är ett svårt läge nu, när spannmålsmarknaden ser så ”bullish” ut och minst två avgörande besked kan komma inom kort:

WASDE på fredag och när som helst, ett ryskt exportstopp. Om vi inte visste detta, skulle vi tro att priset skulle vända ner på potatis från de här nivåerna.

Diagram över potatispriset år 2012

Majs

Lättare regn förekommer i mellanvästern, men detta är sannolikt för lite och för sent. Det torra vädret väntas bestå kanske så länge som mot slutet av augusti. Nederbörd har ökat över Ukraina och Ryssland. Det kanske gör någon nytta i Ryssland, men i Ukraina är det för sent. Måndagens crop ratings visade att majs i good / excellent condition minskat 1% till 23%. Poor condition till very poor condition ökade med 2% till 25%. Nedan ser vi ett diagram som visar good/excellent condition sedan 1986. För 24 år sedan, år 1988 låg andelen prima majs på 18%. Annars ser vi att det är ovanligt dåligt i år.

Crop condition för majs

USDA väntas sänka sitt estimat för amerikansk skörd. USDA har också en tendens att inte pytsa ut alla dåliga nyheter samtidigt. Dåliga siffror brukar följas av mer av samma sak, fram till den slutliga siffran i januari. Priset på decembermajs har även den senaste veckan rört sig ”sidledes”. Marknaden är helt klart trött. Alla väntar på fredagens WASDE-rapport. När den kommer blir det säkert nytt liv i marknaden. Och då troligen uppåt.

Utveckling av majspriset - Diagram över 2012

Sojabönor

Det är små förändringar avseende vädret i de delar av USA där sojabönor odlas. Lättare regn väntas i delar av mellanvästern, men prognoserna visar att det kommer att vara ganska torrt ända fram till slutet av månaden. I Indien har nederbörden ökat, framförallt i de torkdrabbade nordvästra delstaterna.

Osäkerheten inför fredagens WASDE-rapport är stor. Marknadens uppfattning om avkastning per acre i USA varierar mellan 35.8 och 39.5 bushels per acre. Skördad areal varierar varierar också mellan 74 och 75.5 miljoner acres. USDA har en tendens att (fortsätta) sänka avkastningsestimaten fram till dess de publicerar den slutliga siffran i januari.

Crop condition som publicerades i måndags låg kvar oförändrat på 29% good/excellent från veckan innan. Däremot ökade andelen i poor/very poor condition med 2%. Som vi ser i diagrammet nedan får vi gå tillbaka till 1988 för att hitta en lägre nivå än 29% i good/excellent condition. Då nåddes som lägst 17%.

Pris på sojabönor från 1986 ill 2012

En rekordskörd väntas från Sydamerika nästa år, men fram till dess ska världen hushålla med USA:s skörd. Sydamerikas produktion gynnas av att ENSO, som vi sett ovan ligger nära (eller går helt in i El Niño). Detta innebär riklig nederbörd i Sydamerika. Senaste siffran på hur stor andel som brasilianska bönder redan sålt av kommande skörd är 41%. Den låg på 10% samma tid förra året. Malaysia har höjt exportkvoten för palmolja som kan exporteras skattefritt. Lagren av palmolja har vuxit i landet. Kina har fortsatt att sälja av sina stora lager och har ett importbehov om uppskattningsvis 60 mt av 2012/13 års skörd. Brasilien har exporterat 4.1 mt i juli och bör nu ha endast 4.5 mt kvar att exportera; om man utgår från Abioves estimat om en möjlig export på 31.1 mt. USA har i princip inga gamla sojabönor kvar, så hur Kina tänker lösa det här problemet ska bli intressant att se. Nedan ser vi kursdiagrammet på sojabönor med leverans i november. Den uppåtgående trendlinjen har precis brutits. Stöd finns nu på 1536 cent. Underifrån kommer också 55-dagars glidande medelvärde, som ibland sammanfaller med tekniska stöd. Sojabönor ser ur teknisk synvinkel inte lika ”bullish” ut som vete och majs.

Teknisk prognos för pris på sojabönor

Raps

Priset på novemberterminen befinner sig alltjämt i en obruten uppåtgående trend. 500 som var ett starkt stöd, bröts dock, men 480 euro är ett annat starkt stöd.

Pris på raps enligt novemberterminen den 8 augusti 2012

Nedan ser vi kvoten mellan ICE (Canada) Canola (november) och Matif-rapsen. Canolapriset har räknats om till euro per ton.

Raps - Kvot mellan ICE Canola Matif

Vi ser att Matif-rapsen fallit i pris i relation till canolan. I slutet av förra året var premien över 10% för Matif. Nu ligger Matif på par med Canola och har till och med handlats till rabatt i början av augusti. Med tanke på att rapsen noteras i euro, som är svag, kan man tänka sig högre priser (i euro) framöver.

Gris

Decemberkontraktet på lean hogs har brutit ner och befinner sig nu i sjunkande trend.

Decembertermin på lean hogs - Prisdiagram

Mjölk

Priset på mjölkpulver i Nordeuropa har fortsatt att stiga kraftigt den senaste veckan. Förra veckan låg priset på Eurex i spotkontraktet på 2275 euro per ton. Nu har priset gått upp till 2450, vilket är närmare +8% på en vecka.

Pris på mjölkpulver i Europa

På den amerikanska börsen, där torkan som drabbat foderproduktionen är mycket allvarligare än i Europa, har priset rusat. Nedan ser vi decemberkontraktet. Konsolideringsfasen (en triangel) vid 19 cent per pund, har brutits. Kanske 20 cent kan noteras inom kort?

Terminspris på mjölk i USA

Socker

Priset på socker bröt stödet och föll från 22 ner till 21 i skrivande stund. 20 cent per pund är ett tekniskt stöd. Vi tror att priset ska ner och testa den nivån, kanske rentav bottennoteringen från juni på 18.86 cent.

Priset på socker bröt stödet - Diagram

[box]SEB Veckobrev Jordbruksprodukter är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

Disclaimer

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).

Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.

About SEB

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic and other European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets) for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden; it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designated investment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEB conducts operations. SEB Merchant Banking. All rights reserved.

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Analys

How renewable fuels are accelerating the decarbonisation of transport

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WisdomTree

On 16 November 2022, UK’s Royal Air Force (RAF) Voyager aircraft, the military variant of the Airbus A330, took to the skies for 90 minutes over Oxfordshire. What looked like a routine test flight in its outward appearance was ultimately deemed ground-breaking. Why? It was a world-first military transporter aircraft flight, and the first of any aircraft type in the UK to be completed using 100% sustainable jet fuel.  

Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree
Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree

What are renewable fuels?

Renewable hydrocarbon biofuels (also called green or drop-in biofuels) are fuels produced from biomass sources through a variety of biological, thermal, and chemical processes. These products are chemically identical to petroleum gasoline, diesel, or jet fuel.

In other words, renewable fuels are sources of energy chemically identical to fossil fuels but produced from domestic, commercial, or agricultural waste (see Figure 1 below).

Figure 1: Converting waste into energy

Waste types and refinery output

Why the excitement?

Renewable fuels, like renewable diesel and sustainable jet fuel, can reduce greenhouse gas emissions by around 80-90% compared to fossil fuels. And because they burn much cleaner, engine filters remain cleaner for longer reducing the need for maintenance. Furthermore, given used cooking oil, vegetable oil, processing waste, and animal fat waste are used as inputs, the production of these fuels reduces biowaste, thereby cutting emissions from landfills.

This makes renewable fuels a key component of the circular economy. Humans have largely operated on the linear model historically when it comes to utilising natural resources. The circular model, in contrast, is much less wasteful and seeks to recycle as much as possible (see Figure 2 below).

Figure 2: The Circular Economy

Circular economy
Source: WisdomTree, Ellen MacArthur Foundation, 2023

The most exciting thing about renewable fuels is the immediacy with which they can make an impact. The reason why they are referred to as drop-in fuels is that they can replace fossil fuels in internal combustion engines with little or no modification required. So, if supply was abundant enough, forms of transport which cannot be electrified easily like heavy duty trucks, ships, and aeroplanes can be switched across to renewable fuels making a significant improvement to the environmental footprint. According to BP, “A return flight between London and San Francisco has a carbon footprint per economy ticket of nearly 1 tonne of CO2 equivalent. With the aviation industry expected to double to over 8 billion passengers by 2050, it is essential that we act to reduce aviation’s carbon emissions.”

The challenge

Renewable fuels or biofuels are still in their infancy. This means the obvious hurdle to overcome is cost competitiveness with fossil fuels. Cost estimates vary, but figures from the International Air Transport Association (IATA) provide a useful sense for the ballpark. In May 2022, IATA stated that the average worldwide price of jet fuel is about $4.15 per gallon compared to the US average price of a gallon of sustainable aviation fuel, which is about $8.67.

So, roughly double the price of the incumbent polluting technology. This is not a bad starting point at all. Considering how rapidly the cost of energy storage in batteries has fallen in the last decade, renewable fuels could become competitive quite soon if sufficient investment is made and economies of scale are achieved. IATA also predicts that renewable fuels could make up 2% of all aviation fuels by 2025, which could become a tipping point in their competitiveness.

Businesses are acting

Businesses pursuing their own net zero targets have already started exploring renewable fuels to minimise their waste. Darling Ingredients Inc, which produces its trademark Diamond Green Diesel from recycled animal fats, inedible corn oil, and used cooking oil, was chosen by fast food chain Chick-fil-A in March 2022 to turn its used cooking oil into clean transportation fuel.

Similarly, McDonald’s entered into a partnership with Neste Corporation in 2020 to convert its used vegetable oil into renewable diesel and fuel the trucks that make deliveries to its restaurants. According to TortoiseEcofin, both Darling Ingredients and Neste have a net negative carbon footprint given emissions produced by these businesses are lower that the emissions avoided because of their renewable fuels.

A final word

Renewable fuels alone will not tackle climate change. No single solution can. But they can help us make meaningful progress. The Intergovernmental Panel on Climate Change (IPCC) emphasises how crucial it is for the world to halve its greenhouse gas emissions this decade to at least have a chance of limiting global warming to 1.5oC. This means that solutions with an immediate effect have an important role to play. Biofuels can cut emissions from waste in landfills and provide much cleaner alternatives to fossil fuels to help accelerate the world’s decarbonisation efforts. They don’t require different engines to be of use. They just need funding to reach scale.

Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree

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Analys

SEB Metals Weekly: China Covid exit is bullish for metals

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China Covid exit is bullish for metals

Softer inflation, slight macro-optimism, and China taking a rapid exit from Covid restrictions. Markets have become more optimistic. Inflation indices have eased and that has created some hopes that central banks won’t lift interest to a level that will kill the economy in 2023. Natural gas prices in Europe have fallen sharply. This has suddenly reduced energy-inflationary pressure and removed the direst downside economic risks for the region. But general market optimism is far from super-strong yet. The S&P 500 index has only gained 1.9% since our previous forecast on 1 Nov 2021, and oil prices are down nearly 10% in a reflection of concerns for global growth. China has however removed all Covid-restrictions almost overnight. It is now set to move out of its three years of Covid-19 isolation and lockdowns at record speed. Industrial metals are up 20% and the Hong Kong equity index is up 40% as a result (since 1 Nov-22). China’s sudden and rapid Covid-19 exit is plain and simply bullish for the Chinese economy to the point that mobility indices are already rebounding quickly. SEB’s general view is that inflation impulses will fade quickly. No need then for central banks across the world to kill the global economy with further extreme rate hikes. These developments have removed much of the downside price risks for metals in 2023 and we have to a large degree shifted our 2024 forecast to 2023.

Lower transparency, more geopolitics, more borders, and higher prices and exponential spikes. The first decade of this century was about emerging markets, the BRICs, the commodity price boom, the commodity investment boom, and free markets with free flow of commodities and labor with China and Russia hand in hand with western countries walking towards the future. High capex spending in the first decade led to plentiful supply and low prices for commodities from 2011 to 2020. A world of plenty, friends everywhere, free flow of everything, and no need to worry. The coming decade will likely be very different. Supply growth will struggle due to mediocre capex spending over the past 10 years. Prices will on average be significantly higher. There will be frequent exponential price spikes whenever demand hits supply barriers. Price transparency will be significantly reduced due to borders, taxes, sanctions, geopolitical alignments, and carbon intensities. Prices will be much less homogenous. Aluminium will no longer be just one price and one quality. Who made it, where was it made, where will it be consumed and what the carbon content will create a range of prices. Same for most other metals.

Copper: Struggling supply and China revival propel copper prices higher. Unrest in Peru is creating significant supply risks for copper as the country accounts for 10% of the global supply. Chile accounts for 27% of global production. Production there is disappointing with Codelco, the Chilean state-owned copper mining company, struggling to hit production targets. The Cobre Panama mine in Panama is at risk of being closed over a tax dispute between Quantum and the government. Cobre Panama is one of the biggest new mines globally over the past 10 years. The rapid exit from Covid restrictions in China is bullish for the Chinese economy and thus for copper demand and it has helped to propel prices higher along with the mentioned supply issues. The Chinese property market will continue to struggle, and it normally accounts for 20% of global copper demand while China accounted for 55% of global copper demand in 2021. While China is no longer prioritizing the housing market it is full speed ahead for solar, wind, EVs, and electrification in general. So, weakening Chinese copper demand from housing will likely be replaced by the new prioritized growth sectors. Global supply growth is likely going to be muted in the decade to come while demand growth will be somewhere between a normal 3% pa. to a strong 4% pa. to a very strong 5% pa. Copper prices will be high, and demand will hit the supply barrier repeatedly with exponential spikes as the world is working hard to accelerate the energy transition. Copper prices could easily spike to USD 15-16,000/ton nearest years.

Nickel: Tight high-quality nickel market but a surplus for a low-quality nickel. Nickel production is growing aggressively in Indonesia. The country is projected to account for 60-70% of global supply in 2030. This will become a huge and extremely concentrated geopolitical risk for the world’s consumers of nickel. Indonesia has an abundance of low-grade C2 nickel. The challenge is to convert low-quality C2 nickel to high-quality C1. We are set for a surplus of C2 nickel but the market for C1 nickel will depend strongly on the conversion capacity for C2 to C1. Low price transparency will also help to send prices flying between USD 20,000/ton and USD 30,000/ton. Strong growth in nickel production in Indonesia should initially call for prices down to USD 20,000/ton. But Indonesia is a price setter. It will account for 50% of global supply in 2023. It doesn’t make sense for Indonesia to kill the nickel price. If the nickel price drops, then Indonesia could quickly regulate supply. There should be a premium to nickel due to this. As a result, we expect the nickel price to average USD 24,000/ton in 2023. C2 to C1 conversion capacity may be strained and there should also be a monopoly premium due to the size of Indonesia. Converting C2 to C1 is however extremely carbon intensive and that could be an increasing issue in the years to come.

Zinc: Super-tight global market. European LME inventories are ZERO and zinc smelters there are still closed. European zinc smelters account for 16% of global zinc smelter capacity. Most of this was closed over the past year due to extremely high energy prices. European LME zinc stockpiles are now down to a stunning zero! The global zinc market is extremely tight. Reopening of European zinc smelting seems unlikely in H1-23 with a continued super-tight market as a result both in Europe and globally.

Aluminium: Price likely to be in the range of USD 2400 – 3200/ton and line with coal prices in China. Aluminium prices have historically been tightly tied to the price of coal. But coal prices have been all over the place since the start of 2021 with huge price differences between Amsterdam, Australia, and domestic Chinese coal prices which are now largely state-controlled. China banning imports of Australian coal, the Chinese energy crisis in 2021, and Russia’s invasion of Ukraine in 2022 are ingredients here. This sent aluminium prices flying high and low. Coal prices in China today imply a price of aluminium between USD 2400/ton and 3150/ton with the LME 3mth aluminium price nicely in between at USD 2590/ton. The global coal market should now become more orderly as China now again is accepting Australian coal. Energy costs have fallen sharply in Europe and some producers in the Netherlands have talked about possible restarts of production. China is likely to reduce its exports of primary aluminium. Energy security of supply is high on the agenda in China, and it makes no sense to emit lots of CO2 in China and indirectly export energy in the form of primary aluminium. Growth in non-China aluminium demand in the years to come will have to be covered by non-China producers which have the potential to force prices higher and away from coal as the price driver. While LME has one price for the 3mth aluminium price we’ll likely get larger and larger price differences across the world in the form of possibly extreme price premiums for example in the EU and the US.

SEB Commodities price outlook
Source: SEB Markets – Commodities. Historical data: Bloomberg 
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Analys

Solid demand growth and strained supply to push Brent above USD 100/b

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SEB - Prognoser på råvaror - Commodity

Brent crude had a strong end of the year as it traded at the highest level since 1 December. It is a slow start to the new year due to bank holidays and Dated Brent trades close to USD 85/b. It averaged USD 99.9/b in 2022. We expect it to average more than USD 100/b on average for the coming year amid strained supply and rebounding demand. Chinese oil demand is set to recover strongly along with re-openings while non-OECD will continue to move higher. At the moment oil looks absurdly cheap as it is cheaper than natural gas in both EU and Japan and also cheaper than coal in Australia.

Some price strength at the end of the year. The Dated Brent crude oil price index gained 2.3% on Friday with a close at USD 84.97/b. It was the highest close since 1 December. This morning it is trading slightly lower at USD 84.8/b but the market is basically void of action due to bank holidays.

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

Gloom and doom but IEA, OPEC and US EIA project global crude oil demand to rise between 1 m b/d and 2.2 m b/d YoY in 2023. They also expect call-on-OPEC to rise between 0.3 m b/d and 1.0 m b/d. The US EIA projects demand to increase 1 m b/d in 2023 on the back of a growth of 1.3 m b/d in non-OECD where demand in India rises by 0.2 m b/d and China by 0.6 m b/d. In China this is of course to a large degree due to re-opening after Covid-19 lock-downs. But it is still a good reminder of the low base of oil demand in non-OECD versus OECD. India last year consumed 5 m b/d which only amounts to 1.3 b/capita/year versus a world average of 4.5  b/capita/year and European demand of 10 b/capita/year. Even China is still below the world average as its demand in 2022 stood at 15.2 m b/d or 4.0 b/capita/yr. Non-OECD oil demand thus still has a long way to go in terms of oil demand and that is probably one of the things we’ll be reminded of in 2023 as Covid-19 lock-downs disappear entirely.

Solid demand growth in the face of strained supply. Important to remember is that the world has lost a huge amount of fossil supply from Russia due to the war in Ukraine. First in terms of natural gas where supply to the EU and thus to the world has declined by some 2.5 m boe/d versus pre-war levels. Secondly in terms of crude and products. The latter is of course a constant guessing game in terms of how much Russian crude and product exports has declined. The US EIA however projects that crude oil production in the Former Soviet Union will be down 2 m b/d in 2023 versus pre-Covid levels and down 1.3 m b/d YoY from 2022 to 2023. We are thus talking up to 4.5 m boe/d of lost supply from Russia/FSU. That is a huge loss. It is the reason why coal prices are still trading at USD 200 – 400/ton versus normal USD 85/ton as coal is an alternative to very expensive natural gas.

Overall for 2023 we are looking at a market where we’ll have huge losses in supply of fossil energy supply from Russia while demand for oil is set to rebound solidly (+1.0 – 2.2 m b/d) along with steady demand growth in non-OECD plus a jump in demand from China due to Covid-19 reopening. Need for oil from OPEC is set to rise by up to 1.0 m b/d YoY while the group’s spare capacity is close to exhausted.

We expect Brent crude to average more than USD 100/b in 2023. Despite all the macro economic gloom and doom due to inflation and rising interest rates we cannot help having a positive view for crude oil prices for the year to come due to the above reasons. The Dated Brent crude oil price index averaged USD 99.9/b in 2022. We think Brent crude will average more than USD 100/b in 2023. Oil is today absurdly cheap at USD 85/b. It is cheaper than both coal in Australia and natural gas both in Japan and the EU. This is something you hardly ever see. The energy market will work hard to consume more what is cheap (oil) and less of what is expensive (nat gas and coal).

Latest forecasts by IEA, OPEC and US EIA for oil demand growth and call-on-OPEC YoY for 2023. Solid demand growth and rising need for oil from OPEC. 

Latest forecasts by IEA, OPEC and US EIA for oil demand growth and call-on-OPEC YoY for 2023.
Source: IEA, EIA, OPEC, SEB graph

Oil demand projections from the main agencies and estimated call-on-OPEC. More demand and higher need for oil from OPEC

Oil demand projections
Source: IEA, EIA, OPEC, SEB table

EIA STEO projected change in oil demand for different countries and regions YoY to 2023

EIA STEO projected change in oil demand for different countries and regions YoY to 2023
Source: US EIA, SEB graph

US EIA Dec STEO forecast for FSU oil production. Solid decline projected for 2023.

US EIA Dec STEO forecast for FSU oil production. Solid decline projected for 2023.
Source: US EIA data and projection. SEB graph

US commercial crude and product stocks still below normal

US commercial crude and product stocks still below normal
Source: US EIA, SEB graph

Total US crude and product stocks including SPR. Declining, declining, declining.

Total US crude and product stocks including SPR. Declining, declining, declining.
Source: US EIA, SEB graph

US crude and product inventories both excluding and including Strategic Petroleum Reserves

US crude and product inventories both excluding and including Strategic Petroleum Reserves

US oil sales from US SPR is now coming to an end. Will make the market feel much tighter as it really is.

US oil sales from US SPR is now coming to an end. Will make the market feel much tighter as it really is.
Source: US EIA, SEB graph

Brent crude oil is absurdly cheap as it today trades below both Australian coal and natural gas in both Japan and the EU. Coal and natural gas prices should trade lower while oil should trade higher.

Source: Blbrg data, SEB graph

EU diesel prices versus natural gas prices. Could start to move towards a more natural price-balance in terms of substitution.

EU diesel prices versus natural gas prices. Could start to move towards a more natural price-balance in terms of substitution.
Source: Blbrg data, SEB graph and calculations
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