Analys

LME Week in three minutes

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8 år sedan

den

7 november, 2016

Handelsbanken - Råvarubrevet - Nyhetsbrev om råvaror

We spent the past week in London for the annual LME Week, where miners and metal traders gather to discuss markets, the outlook and price contracts for next year. The general mood was very different to recent years, when war stories were exchanged after the toughest trading years of the current cycle. Year to date, the zinc price is up by 52%, nickel by 18% and aluminium by 14%; the only laggard among base metals is copper, with a 4% gain. This report details our key impressions and summarises parts of our presentation.

This year’s theme

It is amazing to see what a Chinese liquidity boost can do to base metal markets. We were expecting increased bullish sentiment, but the magnitude of optimism surprised us. We think we found this year’s theme at LME Week: the discrepancy between physical and financial traders. Physical players felt it is the best market for years and parked all wider concerns, while the financial community was more cautious, believing that the current stimulus-driven rally was living on at borrowed time.

Nickel is clearly the favoured metal and offers the greatest potential, according to both our and the consensus view. Recent scepticism over policies in South-East Asian has not changed people’s minds. Zinc is still among metals with an anticipated deficit, despite this year’s remarkable price gains. Views are more bearish on copper and aluminium. Expectations for a greater divergence between metals are rock solid.

Small changes make big differences

Not much has happened to the real economy since last year. Global growth was rock steady at 2.8%, but a rising USD/falling RMD indicated a hard landing in China and the market feared the first Fed rate increase in more than a decade. Markets are now confident that the Fed will raise rates cautiously and that Chinese policymakers will launch stimulus as a backstop.

But it means that macro has become the new micro— this year’s second theme. No one is safe from a change in the big picture, as the big picture also sets fundamentals for local markets.

From a macro perspective, there is no lack of challenges ahead. Energy has been this year’s largest mover among commodities, but energy prices will probably not drive metal prices up any further. There is now less pressure on the supply side after price gains, implying much less production cuts ahead. Mining companies have seen their equity explode after undertaking simple housekeeping measures and cautiously dealing with asset temptations, but those tailwinds are now in the past.

Chinese liquidity behind the turnaround

The mini-cycles in China have become more frequent but shorter in duration. After launching the infrastructure spending stimulus programme, policymakers appear to act more like fire-fighters than reformers. Credit growth has accelerated again after multiple interest rate cuts in 2015 have revived loan demand. China’s monetary policy has not been as accommodating since 2011.

Property boom momentum fading

Policymakers spent much of 2015 directing stimulus toward the stalled property sector. Property construction is the single most important sector in the Chinese economy. The huge inventory of built but unsold property dried up after the removal of controls on speculators and cuts to mortgage/down-payment rates triggered a sales revival. The drawback of such aggressive stimulus is excessive price increases, especially in first-tier cities. Property prices in Shenzhen rose by 60% y-o-y in mid-2016. As a consequence, policymakers were forced to curb property prices once again. Increasing down-payments and halting sales to non-locals in some cities are two examples of recent steps taken to curb overheating.

Steel market rebalancing

Through a detailed plan for each province, policymakers appear to be taking a stronger stance on cutting back oversupply. Supply cuts occurred at the same time as demand received a boost from a pick-up in property markets. Both supply and demand contributed to a much better balance in the Chinese steel industry during the first half of 2016.

The pressure on overseas steel markets, such as Europe and the US, has stalled, as domestic steel demand in China has increased due to this year’s infrastructure spending programme aimed at balancing the economic slowdown. Steel export volumes from China are still high, but domestic steel prices are about 40% higher year to date. Overseas steel prices have subsequently risen too. Nonetheless, the situation has its roots in Chinese monetary policy in 2015.

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Saudi won’t break with OPEC+ to head calls for more oil from Trump

Publicerat

18 timmar sedan

den

28 januari, 2025

Redaktionen

Rebounding after yesterday’s drop but stays within recent bearish trend. Brent crude sold off 1.8% yesterday with a close of USD 77.08/b. It hit a low on the day of USD 76.3/b. This morning it is rebounding 0.8% to USD 77.7/b. That is still below the 200dma at USD 78.4/b and the downward trend which started 16 January still looks almost linear. A stronger rebound than what we see this morning is needed to break the downward trend.

Bjarne Schieldrop, Chief analyst commodities, SEB

Saudi won’t break with OPEC+ to head calls for more oil from Trump. OPEC+ will likely stick to its current production plan as it meets next week. The current plan is steady production in February and March and then a gradual, monthly increase of 120 kb/d/mth for 18 months starting in April. These planned increases will however highly likely be modified along the way just as we saw the group’s plans change last year. When they are modified the focus will be to maintain current prices as the primary goal with production growth coming second in line. There is very little chance that Saudi Arabia will unilaterally increase production and break the OPEC+ cooperation in response to recent calls from Trump. If it did, then the rest of OPEC+ would have no choice but to line up and produce more as well with the result that the oil price would totally collapse.

US shale oil producers have no plans to ramp up activity in response to calls from Trump. There are no signs that Trump’s calls for more oil from US producers are bearing any fruits. US shale oil producers are aiming to slow down rather than ramp up activity as they can see the large OPEC+ spare capacity of 5-6 mb/d sitting idle on the sideline. Even the privately held US shale oil players who account for 27% of US oil production are planning to slow down activity this year according to Jefferies Financial Group. US oil drilling rig count falling 6 last week to lowest since Oct 2021 is a reflection of that.

The US EIA projects a problematic oil market from mid-2025. Stronger demand would be the savior. Looking at the latest forecast from the US EIA in its January STEO report one can see why US shale oil producers are reluctant to ramp up production activity. If EIA forecast pans out, then either OPEC+ has to reduce production or US shale oil producers have to if they want to keep current oil prices. The savior would be global economic acceleration and higher oil demand growth.

Saudi Arabia to lift prices for March amid tight Mid-East crude market. But right now, the market is very tight for Mid-East crude due to Biden-sanctions. The 1-3mth Dubai time-spread is rising yet higher this morning. Saudi Arabia will highly likely lift its Official Selling Prices for March in response.

US EIA January STEO report. Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. Projects a surplus market where either US shale oil producers have to produce less, or OPEC+ has to produce less.

Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. — Source: SEB graph and calculations, US EIA data

Forward prices for ICE gasoil swaps in USD/ton. Deferred contracts at very affordable levels.

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Analys

Brent rebound is likely as Biden-sanctions are creating painful tightness

Publicerat

2 dagar sedan

den

27 januari, 2025

Redaktionen

Bearish week last week and dipping lower this morning on China manufacturing and Trump-tariffs. Brent crude traded down 4 out of five days last week and lost 2.8% on a Friday-to-Friday basis with a close of USD 78.5/b. It hit the low of USD 77.8/b on Friday while it managed to make a small 0.3% gain at the end of the week with a close that was marginally below the 200dma. This morning it is trading down 0.4% at USD 78.2/b amid general market bearishness. China manufacturing PMI down to 49.1 for January versus 50.1 in December is pulling copper down 1.3%. Trump threatening Colombia with tariffs.

Rebound in crude prices likely as Dubai time-spreads rises further. The Dubai 1-3mth time-spread is rising to a new high this morning of USD 3.7/b. It is a sign that the Biden-sanctions towards Russia is making the medium sour crude market very tight. Brent crude is unlikely to fall much lower as long as these sanctions are in place. Will likely rebound.

Asian buyers turning to the Mid-East to replace Russian barrels. Amin Nasser, CEO of Saudi Aramco, said that the new sanctions are affecting 2 out of 3.4 mb/d of Russian seaborne crude oil exports. Strong bids for Iraqi medium and heavy crudes are sending spot prices to Asia to highest premiums versus formula pricing since August 2023. And Europe is seeing spot premiums to formula pricing at highest since 2021 (Argus).

Strong rise in US oil production is a losing hand. A lot of Trump-talk about a 3 mb/d increase in US oil production. Occidental Petroleum CEO Vicki Hollub commented in Davos that it is possible given the US resource base, but it is not the right thing to do since the global market is oversupplied (Argus). Everyone knows that OPEC+ has a spare capacity of 5-6 mb/d on hand. The comfort zone is probably to have a spare capacity of around 3 mb/d. FIRST the group needs to re-deploy some 3 mb/d of its current spare capacity and THEN the US and the rest of non-OPEC+ can start to think about acceleration in supply growth again. Vicki Hollub understands this and highly likely all the other oil CEOs in the US understands this as well. Donald Trump calling for more US oil will not be met before market circumstances allows it. Even sanctions on Iran forcing 1.5-2.0 mb/d of its crude exports out of the market will first be covered by existing surplus spare capacity within OPEC6+ and not the US.

US oil drilling rig count fell by 6 to 472 last week and lowest since October 2021. Current decline could be due to winter weather in the US but could also be like Hollub commented in Davos arguing that US oil production growth is not the right thing to do.

1-3mth time-spreads in USD/b. Dubai to yet higher level this morning. Even Brent and WTI are rebounding. Could be some extra spike since we are moving towards the end of the month. But it is still indicating a very tight market for medium sour crude as a result of the latest Biden-sanctions.

US oil drilling rig count down 6 last week to lowest level since October 2021

Non-OPEC, non-FSU production to grow 1.4 mb/d in 2025. Third weakest in 4 years. Though still a bit more than total expected global oil demand growth of 1.1 mb/d/y (IEA)

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Analys

Brent testing the 200dma at USD 78.6/b with API indicating rising US oil inventories

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6 dagar sedan

den

23 januari, 2025

Redaktionen

Brent touching down to the 200dma. Brent crude traded down for a fifth day yesterday with a decline of 0.4% to USD 70/b. This morning it has traded as low as USD 78.6/b and touched down and tested the 200dma at USD 78.6/b before jumping back up and is currently trading up 0.2% on the day at USD 79.1/b.

The Dubai 1-3mth time-spread is holding up close to recent highs. The 1-3mth time spreads for WTI and Brent crude have eased significantly. The Dubai 1-3mth spread is however holding up close to latest high. Indian refiner Bharat is reported to struggle to get Russian crude for March delivery (Blbrg). The Biden-sanctions are clearly having physical market effects. So, the Dubai 1-3mth time-spread holding on to recent high makes a lot of sense. I.e. it was not just a spike on fears.

US oil inventories may have risen 6 mb last week (API). Actual data later today. The US DOE will release US oil data for last week later today. The US API last night indicated that US crude and product stocks may have risen close to 6 mb last week. This may be weighing on the oil price today.

Brent and WTI 1-3mths time-spreads have fallen back while Dubai is holding up