Analys
LME Week 2013 på en sida

LME-veckan är dagarna då industrin för basmetaller samlas i London och försöker bilda sig en uppfattning om var priserna på metallerna ska ta vägen. Hemma efter årets LME-vecka sammanfattar vi diskussioner, teman och frågor.
Lagerköer
För tredje året i rad, och med eskalerande intensitet diskuterades problemet med köer för att få ut metall ur LME:s lagerhus. LME:s karismatiske ledare Charles Li adresserade problemet med eftertryck (precis som förra året) men mellan orden ekade det tomt. Intet nytt under solen alltså när det gäller LME:s förmåga att få bukt med problemet att få ut metall ur lagerhusen. Situationen förklarar mycket av de höga premier på fysisk metall som vi sett under 2013. Zink och aluminium handlas omkring sina 10 års medelvärde men premien för fysisk metall ligger omkring 50-100 % över 10 års-snittet.
CFTC
”Commitment of Traders Report” har varit hett i försnacket inför veckan. Rapporteringen för råvaror handlade i USA ger en föredömlig översikt hur investerare är positionerade i respektive råvara. Trycket ökar på LME att avlägga motsvaran de data för de LME-handlade metallerna och Charles Li sade sig välkomna initiativet. LME har nog mycket att vinna på ökad transparens. LME säger att handelsvolymerna är 7 % högre hittills i år men de flesta metallhandlare vi talar med vittnar om lägre handlade volymer. En märklig diskrepans.
Överskott puttar ner koppar från tronen
LME index handlas 8 procent lägre under årets konferens än under 2012 års dito. Koppar har gått från att under 2012 vara den starkaste metallen till att hittills i år falla med 12 %. Starkare utsikter för ökad produktion är huvudskälet. Bland de metaller som fallit mest av samma skäl hittar vi nickel som tappat 19 % i år. Tenn är den enda basmetall som stigit hittills i år. Handlarna återspeglar också marknaden; bly och tenn var de metaller som flest trodde skulle stiga kommande 12 månader. En plats som koppar haft under de senaste åren. Favoritmetall att vara kort var återigen aluminium. Överskottet på metallmarknaden verkar vara det som plågar flest av deltagarna, främst på stål där antalet handelstvister (AD/ CVD) ökar kraftigt och utgör ett hot mot den öppna marknaden trots ett globalt kapacitetsutnyttjande om ca 75 %.
Olönsam produktion
Den senaste tiden har tvingat flera producenter att stänga produktion på grund av de låga priserna. Glencore:s nickelgruva Falcondo med kapacitet för 30 kt Nickel per år i Dominikanska rep är ett bra exempel. Alcoa och Rusal har stängt ner viss aluminiumproduktion. Stängningarna har varit inom nickel och aluminium, de två metaller som har högst lager och störst överskott. Ser vi till stål är efterfrågan i EU ned 30 % utan några större stängningar. Ca 5-7 ugnar kan tvingas stänga inom EU vilket blir en het politisk fråga precis som med Ilvas verk i Taranto.
Firm floor & soft ceiling
Supercykeln på råvaror är långt från över, kanske om man ser till cykeln av kraftiga prisrörelser, men fokus förflyttas till alla utmaningar på utbudssidan för att möta efterfrågan på längre sikt. Kraftigt ökade kostnader (vikande halter, geografiska och teknologiska utmaningar, miljöavgifter, brist på kvalificerad arbetskraft etc.) och svårigheter att få finansiering är oroande. Stora nedskrivningar av tillgångsvärden har gjort att investerarkollektivet fokuserar mer på projekt med starka kassaflöden och undviker projekt i riskzoner.
Fjolårets kinafokus fanns kvar men det rådde större tillit till landets framtid efter årets ledarskapsskifte. I likhet med vår egen tro på en starkare kinesisk utveckling de kommande 6 månaderna så får Kinesisk makro representera det mest positiva inslaget från dagarna i London.
Analys
All eyes on OPEC V8 and their July quota decision on Saturday

Tariffs or no tariffs played ping pong with Brent crude yesterday. Brent crude traded to a joyous high of USD 66.13/b yesterday as a US court rejected Trump’s tariffs. Though that ruling was later overturned again with Brent closing down 1.2% on the day to USD 64.15/b.

US commercial oil inventories fell 0.7 mb last week versus a seasonal normal rise of 3-6 mb. US commercial crude and product stocks fell 0.7 mb last week which is fairly bullish since the seasonal normal is for a rise of 4.3 mb. US crude stocks fell 2.8 mb, Distillates fell 0.7 mb and Gasoline stocks fell 2.4 mb.
All eyes are now on OPEC V8 (Saudi Arabia, Iraq, Kuwait, UAE, Algeria, Russia, Oman, Kazakhstan) which will make a decision tomorrow on what to do with production for July. Overall they are in a process of placing 2.2 mb/d of cuts back into the market over a period stretching out to December 2026. Following an expected hike of 137 kb/d in April they surprised the market by lifting production targets by 411 kb/d for May and then an additional 411 kb/d again for June. It is widely expected that the group will decide to lift production targets by another 411 kb/d also for July. That is probably mostly priced in the market. As such it will probably not have all that much of a bearish bearish price impact on Monday if they do.
It is still a bit unclear what is going on and why they are lifting production so rapidly rather than at a very gradual pace towards the end of 2026. One argument is that the oil is needed in the market as Middle East demand rises sharply in summertime. Another is that the group is partially listening to Donald Trump which has called for more oil and a lower price. The last is that Saudi Arabia is angry with Kazakhstan which has produced 300 kb/d more than its quota with no indications that they will adhere to their quota.
So far we have heard no explicit signal from the group that they have abandoned the plan of measured increases with monthly assessments so that the 2.2 mb/d is fully back in the market by the end of 2026. If the V8 group continues to lift quotas by 411 kb/d every month they will have revived the production by the full 2.2 mb/d already in September this year. There are clearly some expectations in the market that this is indeed what they actually will do. But this is far from given. Thus any verbal wrapping around the decision for July quotas on Saturday will be very important and can have a significant impact on the oil price. So far they have been tightlipped beyond what they will do beyond the month in question and have said nothing about abandoning the ”gradually towards the end of 2026” plan. It is thus a good chance that they will ease back on the hikes come August, maybe do no changes for a couple of months or even cut the quotas back a little if needed.
Significant OPEC+ spare capacity will be placed back into the market over the coming 1-2 years. What we do know though is that OPEC+ as a whole as well as the V8 subgroup specifically have significant spare capacity at hand which will be placed back into the market over the coming year or two or three. Probably an increase of around 3.0 – 3.5 mb/d. There is only two ways to get it back into the market. The oil price must be sufficiently low so that 1) Demand growth is stronger and 2) US shale oil backs off. In combo allowing the spare capacity back into the market.
Low global inventories stands ready to soak up 200-300 mb of oil. What will cushion the downside for the oil price for a while over the coming year is that current, global oil inventories are low and stand ready to soak up surplus production to the tune of 200-300 mb.
Analys
Brent steady at $65 ahead of OPEC+ and Iran outcomes

Following the rebound on Wednesday last week – when Brent reached an intra-week high of USD 66.6 per barrel – crude oil prices have since trended lower. Since opening at USD 65.4 per barrel on Monday this week, prices have softened slightly and are currently trading around USD 64.7 per barrel.

This morning, oil prices are trading sideways to slightly positive, supported by signs of easing trade tensions between the U.S. and the EU. European equities climbed while long-term government bond yields declined after President Trump announced a pause in new tariffs yesterday, encouraging hopes of a transatlantic trade agreement.
The optimisms were further supported by reports indicating that the EU has agreed to fast-track trade negotiations with the U.S.
More significantly, crude prices appear to be consolidating around the USD 65 level as markets await the upcoming OPEC+ meeting. We expect the group to finalize its July output plans – driven by the eight key producers known as the “Voluntary Eight” – on May 31st, one day ahead of the original schedule.
We assign a high probability to another sizeable output increase of 411,000 barrels per day. However, this potential hike seems largely priced in already. While a minor price dip may occur on opening next week (Monday morning), we expect market reactions to remain relatively muted.
Meanwhile, the U.S. president expressed optimism following the latest round of nuclear talks with Iran in Rome, describing them as “very good.” Although such statements should be taken with caution, a positive outcome now appears more plausible. A successful agreement could eventually lead to the return of more Iranian barrels to the global market.
Analys
A shift to surplus will likely drive Brent towards the 60-line and the high 50ies

Brent sinks lower as OPEC+ looks likely to lift production in July by another 400 kb/d. Brent crude declined 0.7% yesterday to USD 64.44/b and traded in a range of USD 63.54 – 65.03/b. This morning Brent is down another 0.7% to USD 64/b along with expectations that OPEC+ will lift its production quota by another 411 kb/d in July.

Kazakhstan would be in breach even if the whole 2.2 mb/d of voluntary cuts are unwounded. The eight countries behind the 2.2 mb/d of voluntary cuts, the V8, have lifted their production quotas by close to 950 kb/d from April to June with unwinding starting in April. Over the coming week towards the end of May, the group will discuss what to do with quotas in July. Market expectations as well as indications from within the group is for another 411 kb/d hike also in July. Higher oil demand during summer both in the Middle East and globally is one reason for the hikes. Most of the additional production will not leave the Middle East but be consumed locally this summer. But Kazakhstan is also a major problem. The country produced 1.77 mb/d in April and 300 kb/d above its quota level. To maintain cohesion and credibility the group needs internal cooperation and harmony. Kazakhstan seems to have no plans to reduce production down to its quota. The alternative solution to reestablish internal harmony is to lift quotas up to where production is. The problem is that Kazakhstan only accounts for less than 5% of the overall production of V8. Thus even after unwinding all of the 2.2 mb/d, the quota of Kazakhstan would not rise much more than 100 kb/d. Far from the country’s overproduction of 300 kb/d in April.
A shift to surplus will likely drive Brent towards the 60-line and high 50ies. Losing front-end backwardation implies Brent crude down to the 60-line and high 50ies. Currently the Brent crude curve holds a front-end backwardation premium of USD 1.5/b versus the November price currently at USD 62.6/b. A result of an oil market which is still tight here and now. But if OPEC+ lifts production to a level where the market starts to run a surplus, then the front-end contract will flip from a USD 1.5/b premium vs. 4 months out to instead a comparable USD 1.5/b discount to 4 months out. That would bring the front-end contract down towards the 60-line and the high 50ies. This because a full out contango market usually also will drive the deferred contracts a bit lower as well. But this may not be all doom and gloom. A softer USD and a lower oil price is a powerful combo for global consumption. Global oil stocks are also low. This will help to cushion the downside.
Brent crude forward curve. Surplus and full contango would eradicate the front-end backwardation and drive Brent crude down towards the 60-line and high 50ies.

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