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Analys

LME Week 2014 på tre minuter

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Handelsbanken - Råvarubrevet - Nyhetsbrev om råvaror

Kvartalsrapport för råvaror från HandelsbankenLME veckan är dagarna då industrin för basmetaller samlas i London och försöker bilda sig en uppfattning om var priserna på metallerna ska ta vägen nästa år. Upptakten till årets konferens var allt annat än positivt när basmetallerna kommit ner i pris och investmentbankerna sänkt utsikterna inför nästa år. Hemma efter årets LME-vecka sammanfattar vi diskussioner, teman och frågor.

Förväntningar

Inför årets tillställning reste vi till London med förväntansbilden av att Indonesiens exportförbud skulle föra nickel till årets snackis, tätt följt av de fysiska premierna för aluminium och LME:s aktion att införa en börshandlad fysisk premie efter att ha misslyckats lösa situationen med de långa köerna för att få ut aluminium ur LME-lagerhusen. I vår förväntansbild fanns inte det generellt negativa sentimentet kring makroutsikterna och metallmarknaderna inför 2015. Att Kina bromsar in har vi haft i korten i flera år och borde inte vara en överraskning för någon i branschen.

LME-seminariet

LME:s Vd, Gary Jones adresserade problemet med köer till lagerhusen redan i öppningsanförandet. Stora ord krävdes för att klä arbetet med att ta bort köerna men de maskerade inte LME:s misslyckande och kvittot kom när LME lanserade ett kontrakt för den fysiska premien. På så vis kan metallhandlare handla risken för att köerna och därmed premierna ska gå upp eller ner. En häpnadsväckande raffinerad lösning på ett problem med att få ut metalltackor ur ett plåthus med en gaffeltruck.

Generella teman

  • Utbudet är viktigare än efterfrågan för priserna 2015
  • Ökad nationalisering av naturtillgångar (Indonesien, nickel)
  • Metallerna divergerar med allt mer åtskiljd fundamenta
  • Lägre energipriser sänker metallprisgolvet genom lägre produktionskostnad
  • Kinas husmarknad största orosmolnet på makrosidan
  • Ökad volatilitet efter lanseringen av minikontrakt för retailmarknaden i Kina via LME:s kommande Hong Kong-kontrakt
  • Lagerstatistik har blivit svårtolkad då stora lager finns utanför LME-husen
  • Konsensus förväntan på när underskott ska uppstå per metall:

CRU:s förväntan på när respektive metall ska gå i underskott

LME Week metall för metall

Nedan sammanfattar vi intrycken från diskussionerna per metall. Av de tre, zink, aluminium och koppar, som avhandlades på det officiella LME-seminariet trodde åhörarna att risken för prisuppgång var störst för Zn 43 % följt av Al 42% och sist koppar med 15%.

Koppar

Alla metaller pressas av ökat utbud utom koppar som pressas av förväntan om ökat utbud. Utbudstoppen har flyttats från 2014 till 2015 efter flera förseningar bland de stora projekten och Grasbergs minskade export under 2014 under Indonesiens exportförbud. Riskerna för utbudstoppen nästa år är mycket mindre då 30% av den kommer från normalisering i produktionen i vissa stora gruvor (bland annat Grasberg), 35% infasning av nya gruvor som börjat producera (de är förbi det mest kritiska stadiet) och 35% från nya greenfield- eller brownfieldprojekt. Kinas årliga tillväxt i kopparimport väntas falla till den lägsta på 6 år och kombinationen gör att priserna väntas ner under 2015 men sedan åter upp 2016 då pipelinen för kopparprojekt är tunn längre fram. Viktigaste produktionsfaktorerna under 2015 är Sierra Goroda, Sisha, Oyu Tolgoi, Caserones, Toromocho och Mine minestro Hales. Vi håller kvar vårt scenario med en koppardipp till 5500 USD/ton 2015 men där medelpriset blir mellan 5750 USD/ton.

Aluminium

Första halvan av 2014 dominerades av uppskruvade förväntningar på efterfrågan från Amerikansk bilindustri. I kombination med mycket trendföljande spekulation steg priset snabbt. Utsikterna för aluminium i bilindustrin har sedan dess delvis grusats när nästa generations bilar verkar gå från aluminium till höghållfasta supertunna stål. Indonesiens exportförbud har inte drivit upp priset på råvaran bauxit och avställd smältverkskapacitet finns hela tiden i bilden, redo att kliva in och dämpa långsiktiga prisrallyn. Det finns ingen brist på aluminium globalt men en del vittnar om brist i statistiken med oväntade poster på 850 Kt i Mexico ämnad för amerikanska marknaden. Kina och resten av världen är delvis separerade men om ex Kina går i underskott kommer Kinas export av halvfabrikat täcka upp. Vi behåller vårt scenario för 2015 med aluminium mellan 1800-2000 och 1900 USD/ton i medelpris.

Zink

Annalkande gruvstängningar börjar etablera sig som tema och zink är nu nästa nickel i mångas sinne. Tesen fick dock visst motstånd där man menar att det visserligen ska stängas några få riktigt stora gruvor men det finns å andra sidan ett stort antal små gruvor som kommer expandera med strategin att ta marknadsandelar i bakvattnet av de utbrutna. Svårt att bedöma sannolikheten med många små expansioner men vi står kvar i relativt positiv syn på zink med 2250 USD/ton som medelpris 2015

Nickel

Tveklöst den metall där deltagarna har störst tro på högre priser inför 2015. Underliggande fundamenta har förvärrats under året och kunskapen kring Filipinernas säsongsmönster i exporten som har täckt upp för Indonesiens exportförbud så här lång börjar sprida sig. Filipinerna går nu in i monsunperioden då regnfall minskar möjligheterna att exportera malm radikalt. Deltagarna räknar med att nickelmarknaden hamnar i underskott nästa år och att lagernivåer kommer konsumeras för att balansera marknaden. Högre prisestimat är ett tema och vårt scenario med snittpris på 23 000 USD/ton är visserligen en stor rörelse men finner relativt god acceptans. Nickel är i våra ögon den enda basmetall som har risk för prisuppgång på mer än 50 % under 2015 från dagens nivåer.

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Analys

Fear that retaliations will escalate but hopes that they are fading in magnitude

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SEB - analysbrev på råvaror

Brent crude spikes to USD 90.75/b before falling back as Iran plays it down. Brent crude fell sharply on Wednesday following fairly bearish US oil inventory data and yesterday it fell all the way to USD 86.09/b before a close of USD 87.11/b. Quite close to where Brent traded before the 1 April attack. This morning Brent spiked back up to USD 90.75/b (+4%) on news of Israeli retaliatory attack on Iran. Since then it has quickly fallen back to USD 88.2/b, up only 1.3% vs. ydy close.

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

The fear is that we are on an escalating tit-for-tat retaliatory path. Following explosions in Iran this morning the immediate fear was that we now are on a tit-for-tat escalating retaliatory path which in the could end up in an uncontrollable war where the US unwillingly is pulled into an armed conflict with Iran. Iran has however largely diffused this fear as it has played down the whole thing thus signalling that the risk for yet another leg higher in retaliatory strikes from Iran towards Israel appears low.

The hope is that the retaliatory strikes will be fading in magnitude and then fizzle out. What we can hope for is that the current tit-for-tat retaliatory strikes are fading in magnitude rather than rising in magnitude. Yes, Iran may retaliate to what Israel did this morning, but the hope if it does is that it is of fading magnitude rather than escalating magnitude.

Israel is playing with ”US house money”. What is very clear is that neither the US nor Iran want to end up in an armed conflict with each other. The US concern is that it involuntary is dragged backwards into such a conflict if Israel cannot control itself. As one US official put it: ”Israel is playing with (US) house money”. One can only imagine how US diplomatic phone lines currently are running red-hot with frenetic diplomatic efforts to try to defuse the situation.

It will likely go well as neither the US nor Iran wants to end up in a military conflict with each other. The underlying position is that both the US and Iran seems to detest the though of getting involved in a direct military conflict with each other and that the US is doing its utmost to hold back Israel. This is probably going a long way to convince the market that this situation is not going to fully blow up.

The oil market is nonetheless concerned as there is too much oil supply at stake. The oil market is however still naturally concerned and uncomfortable about the whole situation as there is so much oil supply at stake if the situation actually did blow up. Reports of traders buying far out of the money call options is a witness of that.

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Analys

Fundamentals trump geopolitical tensions

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SEB - analysbrev på råvaror

Throughout this week, the Brent Crude price has experienced a decline of USD 3 per barrel, despite ongoing turmoil in the Middle East. Price fluctuations have ranged from highs of USD 91 per barrel at the beginning of the week to lows of USD 87 per barrel as of yesterday evening.

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

Following the release of yesterday’s US inventory report, Brent Crude once again demonstrated resilience against broader macroeconomic concerns, instead focusing on underlying market fundamentals.

Nevertheless, the recent drop in prices may come as somewhat surprising given the array of conflicting signals observed. Despite an increase in US inventories—a typically bearish indicator—we’ve also witnessed escalating tensions in the Middle East, coupled with the reinstatement of US sanctions on Venezuela. Furthermore, there are indications of impending sanctions on Iran in response to the recent attack on Israel.

Treasury Secretary Janet Yellen has indicated that new sanctions targeting Iran, particularly aimed at restricting its oil exports, could be announced as early as this week. As previously highlighted, we maintain the view that Iran’s oil exports remain vulnerable even without further escalation of the conflict. It appears that Israel is exerting pressure on its ally, the US, to impose stricter sanctions on Iran, an action that is unfolding before our eyes.

Iran’s current oil production stands at close to 3.2 million barrels per day. Considering additional condensate production of about 0.8 million barrels per day and subtracting domestic demand of roughly 1.8 million barrels per day, the net export of Iranian crude and condensate is approximately 2.2 million barrels per day.

However, the uncertainty surrounding the enforcement of such sanctions casts doubt on the likelihood of a complete ending of Iranian exports. Approximately 80% of Iran’s exports are directed to independent refineries in China, suggesting that US sanctions may have limited efficacy unless China complies. The prospect of China resisting US pressure on its oil imports from Iran poses a significant challenge to US sanctions enforcement efforts.

Furthermore, any shortfall resulting from sanctions could potentially be offset by other OPEC nations with spare capacity. Saudi Arabia and the UAE, for instance, can collectively produce an additional almost 3 million barrels of oil per day, although this remains a contingency measure.

In addition to developments related to Iran, the Biden administration has re-imposed restrictions on Venezuelan oil, marking the end of a six-month reprieve. This move is expected to impact flows from the South American nation.

Meanwhile, US crude inventories (excluding SPR holdings) surged by 2.7 million barrels last week (page 11 attached), reaching their highest level since June of last year. This increase coincided with a decline in measures of fuel demand (page 14 attached), underscoring a slightly weaker US market.

In summary, while geopolitical tensions persist and new rounds of sanctions are imposed, our market outlook remains intact. We maintain our forecast of an average Brent Crude price of USD 85 per barrel for the year 2024. In the short term, however, prices are expected to hover around the USD 90 per barrel mark as they navigate through geopolitical uncertainties and fundamental factors.

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Analys

Brace for Covert Conflict

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SEB - analysbrev på råvaror

In the past two trading days, Brent Crude prices have fluctuated between highs of USD 92.2 per barrel and lows of USD 88.7 per barrel. Despite escalation tensions in the Middle East, oil prices have remained relatively stable over the past 24 hours. The recent barrage of rockets and drones in the region hasn’t significantly affected market sentiment regarding potential disruptions to oil supply. The key concern now is how Israel will respond: will it choose a strong retaliation to assert deterrence, risking wider regional instability, or will it revert to targeted strikes on Iran’s proxies in Lebanon, Syria, Yemen, and Iraq? While it’s too early to predict, one thing is clear: brace for increased volatility, uncertainty, and speculation.

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

Amidst these developments, the market continues to focus on current fundamentals rather than unfolding geopolitical risks. Despite Iran’s recent attack on Israel, oil prices have slid, reflecting a sideways or slightly bearish sentiment. This morning, oil prices stand at USD 90 per barrel, down 2.5% from Friday’s highs.

The attack

Iran’s launch of over 300 rockets and drones toward Israel marks the first direct assault from Iranian territory since 1991. However, the attack, announced well in advance, resulted in minimal damage as Israeli and allied forces intercepted nearly all projectiles. Hence, the damage inflicted was limited. The incident has prompted US President Joe Biden to urge Israel to exercise restraint, as part of broader efforts to de-escalate tensions in the Middle East.

Israel’s response remains uncertain as its war cabinet deliberates on potential courses of action. While the necessity of a response is acknowledged, the timing and magnitude remain undecided.

The attack was allegedly in retaliation for an Israeli airstrike on Iran’s consulate in Damascus, resulting in significant casualties, including a senior leader in the Islamic Revolutionary Guard Corps’ elite Quds Force. It’s notable that this marks the first direct targeting of Israel from Iranian territory, setting the stage for heightened tensions between the two nations.

Despite the scale of the attack, the vast majority of Iranian projectiles were intercepted before reaching Israeli territory. However, a small number did land, causing minor damage to a military base in the southern region.

President Biden swiftly condemned Iran’s actions and pledged to coordinate a diplomatic response with leaders from the G7 nations. The US military’s rapid repositioning of assets in the region underscores the seriousness of the situation.

Iran’s willingness to escalate tensions further depends on Israel’s response, as indicated by General Mohammad Bagheri, chief of staff of the Iranian armed forces. Meanwhile, speculation about a retaliatory attack from Israel persists.

Looking ahead, key questions remain unanswered. Will Iran launch additional attacks? How will Israel respond, and what implications will it have for the region? Moreover, how will Iran’s allies react to the escalating tensions?

Given the potential for a full-scale war between Iran and Israel, concerns about its impact on global energy markets are growing. Both the United States and China have strong incentives to reduce tensions in the region, given the destabilizing effects of a regional conflict.

Our view in conclusion

The recent escalation between Iran and Israel underscores the delicate balance of power in the volatile Middle East. With tensions reaching unprecedented levels and the specter of further escalation looming, the potential for a full-blown conflict cannot be understated. The ramifications of such a scenario would be far-reaching and could have significant implications for regional stability and global security.

Turning to the oil market, there has been much speculation about the possibility of a full-scale blockade of the Strait of Hormuz in the event of further escalation. However, at present, such a scenario remains highly speculative. Nonetheless, it is crucial to note that Iran’s oil production and exports remain at risk even without further escalation. Currently producing close to 3.2 million barrels per day, Iran has significantly increased its production from mid-2020 levels of 1.9 million barrels per day.

In response to the recent attack, Israel may exert pressure on its ally, the US, to impose stricter sanctions on Iran. The enforcement of such sanctions, particularly on Iranian oil exports, could result in a loss of anywhere between 0.5 million to 1 million barrels per day of oil supply. This would likely keep the oil market in deficit for the remainder of the year, contradicting the Biden administration’s wish to maintain oil and gasoline prices at sustainable levels ahead of the election. While other OPEC nations have spare capacity, utilizing it would tighten the global oil market even further. Saudi Arabia and the UAE, for example, could collectively produce an additional almost 3 million barrels of oil per day if necessary.

Furthermore, both Iran and the US have expressed a desire to prevent further escalation. However, much depends on Israel’s response to the recent barrage of rockets. While Israel has historically refrained from responding violently to attacks (1991), the situation remains fluid. If Israel chooses not to respond forcefully, the US may be compelled to promise stronger enforcement of sanctions on Iranian oil exports. Consequently, Iranian oil exports are at risk, regardless of whether a wider confrontation ensues in the Middle East.

Analyzing the potential impact, approximately 2.2 million barrels per day of net Iranian crude and condensate exports could be at risk, factoring in Iranian domestic demand and condensate production. The effectiveness of US sanctions enforcement, however, remains uncertain, especially considering China’s stance on Iranian oil imports.

Despite these uncertainties, the market outlook remains cautiously optimistic for now, with Brent Crude expected to hover around the USD 90 per barrel mark in the near term. Navigating through geopolitical tensions and fundamental factors, the oil market continues to adapt to evolving conflicts in the Middle East and beyond.

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