agriculture

Agriculture– Coffee quality premium shrinks

  • The spread between Robusta and higher-quality Arabica coffee tightened to around US¢40/lb yesterday as Robusta prices soared to new highs – the premium reached a recent high of around US¢80/lb in December 2023. Robusta coffee’s active contract jumped to an all-time high of US$3,250/t yesterday at one point as supply disruptions from Vietnam and Brazil added to the supply tightness. The soaring prices have pushed farmers to hold onto the existing inventory in hopes of even higher prices, creating supply-demand imbalances. Moreover, the ongoing conflict around the Red Sea route makes it more challenging for Vietnamese coffee to reach the US and Europe.

Central Banks' Rates Outlook: Fed Treads Cautiously, ECB Prepares for Hike

Gas Price Has Increased As The Transportation Had Been Limited Because Of The Ukrainian War, NYMEX WTI Went Below $100 Yesterday, But The End Fuel Crisis And Supply Chain Issues May Be Far From Now | ING Economics

ING Economics ING Economics 11.05.2022 15:01
Your daily roundup of commodities news and ING views Gas storage tank Energy Oil sold off with risk assets on Monday, but it failed to follow equities higher yesterday. Instead, downward pressure on the market continued, which saw NYMEX WTI settle below US$100/bbl. Growth concerns continue to weigh on commodities, and a stronger USD only adds further downward pressure to the complex. This weakness has continued in early trading this morning after the API reported that US crude oil inventories increased by 1.62MMbbls - the market was expecting a small draw. In addition, API numbers also showed an increase in refined product inventories. Gasoline and distillate fuel oil inventories increased by 823Mbbls and 662Mbbls respectively. If today’s EIA report shows similar numbers, it would be the first weekly increase for US gasoline inventories since late March and the first for distillates since early April. However, the middle distillate market is still very tight and so we would expect US heating oil cracks to remain well supported. In fact, middle distillate cracks around the world should remain well supported, given the tightness in the market and concerns over Russian gasoil exports. The EIA released its latest Short Term Energy Outlook yesterday. The report cut expectations for US oil production growth for 2022 from around 833Mbbls/d to 731Mbbls/d, which implies US oil output averaging 11.91MMbbls/d this year. However, for 2023, supply is expected to grow by 940Mbbls/d (largely unchanged from last month), which would see US output hitting a record 12.85MMbbls/d. Obviously, the biggest concern for the global oil market is around supply in the short to medium term, given the uncertainty over Russian supply. And the downward revisions to 2022 output estimates will do little to ease these concerns. European natural gas prices showed some strength yesterday. TTF rallied by more than 5%, settling close to EUR99/MWh. This strength came after Ukraine’s gas grid operator (GTSOU) declared force majeure on the transit of Russian gas through Sokhranivka, which accounts for about a third of Russian gas transited via Ukraine. GTSOU has said that it is not possible to continue operations through Sokhranivka due to Russia's military aggression in the region. GTSOU said that gas can be rerouted through Sudzha (another entry point), Gazprom has reportedly said that this is not technically possible. Dutch gas network operator, Gasunie has said that it has contracted a second FSRU (floating storage and regasification unit) for the next 5 years, which would allow it to regas LNG imports at Eemshaven in the north of Groningen. The FSRU is expected to arrive in the third quarter of this year, and along with another FSRU already contracted, would provide a total of 8bcm of regasification capacity at Eemshaven. This regasification capacity would exceed the roughly 6bcm of natural gas that the Netherlands imports from Russia every year. The big question though is if there is enough LNG supply to fully use this capacity, particularly with Germany also securing 4 FSRUs, with an annual capacity of as much as 29bcm. Some of this capacity in Germany is also expected to come into operation ahead of the next winter.   Metals Base metals continued to decline in London amid fragile market sentiment. Copper initially rallied but was unable to hold onto these gains at the close. Shanghai is going into the hardest phase of lockdowns, weighing heavily on sentiment as local authorities vow to bring the Covid wave under control at the community level by the end of this week. Meanwhile, the China Car Passenger Association (CAPM) confirmed that retail passenger vehicle sales plunged by 36% in April, its biggest monthly decline since March 2020. LME aluminium prices continue to fall and have largely ignored a steep decline in on-warrant stocks and a large number of cancelled warrants from Asia, signalling further declines. As of Tuesday, on-warrant stocks have fallen to a record low of 294kt, whilst total closing stocks dropped to 560kt - the lowest since 2005. Antaike has reported that China’s aluminium demand fell 5.5% YoY to 3.3mt last month (the biggest decline since March 2020), primarily impacted by the closure of auto producers due to Covid-related lockdowns. In contrast, the impact on Chinese supply has been rather limited so far, with operating capacity rising to 40.31mt by the end of April. As we also pointed out yesterday, Antaike also believes that the recent Covid outbreak has had a larger impact on demand than the early 2020 lockdowns. Agriculture Data from Brazil’s sugar industry group, UNICA show that sugar production in Center-South Brazil increased to 934kt over the 2nd half of April 2022 compared to only around 127kt over the first half of April as more mills started operations; although it is still significantly lower than the 1.52mt of sugar produced over the same period last season. Sugar cane crushing was down around 20% YoY to 23.8mt over the period with the sugar mix falling to 37.2% compared to 44.5% a year ago. Cumulative sugar production so far this season in CS-Brazil is down around 51% YoY to 1.1mt, reflecting a slow start to the crushing season. High energy prices continue to be supportive for ethanol production with mills allocating more cane towards biofuel supply. TagsSugar Russia-Ukraine Natural gas EIA Covid-19 China   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
European Construction Markets: A Look at Poland, France, and Turkey's Prospects

The Commodities Feed: US gasoline tightness | ING Economics

ING Economics ING Economics 18.05.2022 07:45
Your daily roundup of commodities news and ING views Learn more on ING Economics Energy The oil market has seen a partial recovery in early morning trading today, after Brent settled more than 2% lower yesterday. Reports that the US is looking to ease some sanctions against Venezuela contributed to yesterday’s weakness, with it thought that the easing could see a partial resumption of Venezuelan oil to Europe. Any increase is likely to be rather limited, at least in the short term.   There are growing concerns over the refined products market. What started out as a tight middle distillate market appears to be spreading into the gasoline market, at least for the US. At a time when US gasoline inventories should be building ahead of the driving season, inventories instead have declined for most of this year. These are now below the low end of the 5-year range.  Gasoline demand should only increase over the coming months and, in the absence of a pick up in refinery runs, the gasoline market is likely to continue to tighten. The tighter gasoline market appears to have also contributed to a narrowing in the WTI/Brent discount, given the  need for higher US refinery runs, which should be supportive for US crude demand. Gasoline stocks in the ARA region of Europe are more comfortable, and are at least at a decade high for this time of the year. Given the tightness on the US East Coast and more comfortable European stock levels, we would expect to see a pick-up in European gasoline flows to the US East Coast in order to help alleviate some of this tightness. API numbers released overnight confirm the tightening in the market. US crude oil inventories are reported to have fallen by 2.4MMbbls, whilst stock levels at Cushing, the WTI delivery hub, fell by 3.1MMbbls. It was the gasoline market which saw the largest decline, with stocks falling by 5.1MMbbls over the last week. EIA numbers will be released later today. The EU carbon market saw some strength yesterday, with the market breaking above EUR91/t. The European Parliament’s Environmental Committee voted yesterday on reforms to the EU ETS. The committee agreed on the need for more aggressive carbon emission reduction targets. The committee would like to see emissions covered by the ETS fall by 67% by 2030 from 2005 levels, this compares to the initial proposal for a 61% reduction. In order to achieve this, the committee has  recommended that the amount of emission allowances should be reduced by 4.2% in the first year the reform starts, and then this reduction should increase by 0.1% each year through until 2030. The committee also wants to see the phasing out of free allowances between 2026 and 2030, and the full implementation of  the EU Carbon Border Adjustment Mechanism (CBAM) by 2030, which would be 5 years earlier than currently proposed. In addition,  the Environmental Committee wants to phase out free allocations for the aviation  sector  by 2025, which would  be 2 years earlier than the Commission had proposed. The proposal will also see maritime transport included in the ETS from 2024, which would cover 100% of intra-EU routes, and 50% of emissions from extra-EU routes coming in and out of the EU initially. Finally, the committee also agreed on the implementation of another emission trading  system for commercial buildings and transport, which would start in 2025, whilst private buildings and transportation will be excluded  from this new ETS until at least 2029. This latest proposal will be put to a vote  in parliament next month, after which negotiations between member states will likely start. Metals Latest reports that Shanghai might start relaxing its two-month lockdown after three days of zero community transmission, along with better-than-expected retail sales and consumer spending data from the US, were constructive for risk assets yesterday. Most base metals settled higher on the day, with LME aluminium closing more  than 2% up. Shrinking LME inventories have provided some support  to aluminium. The latest LME data shows that on-warrant inventories for the metal fell for an eighth consecutive day to a new record low of 230kt yesterday. Turning to steel, and China Iron & Steel Association (CISA) said that China will keep its restrictions on new steel capacity intact and would push for more mergers and acquisitions within the industry. Due to ongoing Covid-related restrictions, steel demand has remained under pressure recently, but this should improve as the Covid situation improves. Mysteel expects China’s steel demand over 2H22 to rise by 10% compared to 1H22, whilst YoY growth is expected to hit 15% in 2H22. This growth is expected  to be supported by local government policies. Agriculture CBOT wheat continued to trade firm yesterday, even after India relaxed its stance with its recently announced export ban on wheat. New directives from the Indian government indicate that the restrictions will not apply to wheat shipments that have already been handed over to the customs department for clearance and loadings. However, the export restrictions will still apply to wheat sales where the shipments are not yet finalised through the issuance of irrevocable LoC. Reuters reported that only around 400kt of wheat (out of around 2.2mt of wheat currently at ports) would be eligible for relief and likely to be exported. The relaxation is unlikely to provide much relief to the global market. TagsWheat Oil Metals Gasoline EU carbon Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Chile's Lithium Nationalization and the Global Trend of Resource Nationalism: Implications for EV Supply Chains and Efforts to Strengthen Battery Metal Supply

The Commodities Feed: Another week passes with no EU ban | ING Economics

ING Economics ING Economics 20.05.2022 08:36
Your daily roundup of commodities news and ING views Tank farm for storage of petroleum products in Volgograd, Russia Energy It appears that another week will pass with the EU still unable to agree on a Russian oil ban. While it is taking longer than expected to come to an agreement, we believe that member states will eventually come to a deal. How much of an impact this will have on the market will depend on how watered down the final agreement is relative to the proposal. The effectiveness of the ban will also depend on the actions of countries outside the EU. Bloomberg reports that China is looking to potentially buy Russian crude for its strategic reserves. Although this shouldn’t come as too much of a surprise if China is set to increase its share of Russian oil purchases. The significant discounts available for Russian crude will prove very tempting for some buyers, like China and India. Self-sanctioning will already be affecting Russian oil flows to the EU, even in the absence of an official oil ban. This has left the EU to look elsewhere for alternative supplies, and whilst the US is an obvious candidate (given the expectation of relatively strong supply growth), we could in fact see US crude exports coming under pressure given the narrowing that we have seen in the WTI/Brent discount. The July WTI/Brent discount narrowed to less than US$2/bbl at one stage this week, after starting the month at more than a US$4/bbl discount. Inventories continue to point towards a tightening of the refined products market in Europe. The latest data from Insights Global show that gasoil inventories in the ARA region fell by 31kt over the week to 1.55kt, leaving inventories at multi-year lows. However, the big move over the week was in European gasoline inventories. Gasoline stocks in ARA fell by 342kt to 1.05mt. This decline over the week has seen gasoline inventories fall from more than a 5-year high to just below the 5-year average. Singapore also saw a further tightening in light distillate stocks over the week, with inventory levels declining by 815Mbbls to 13.74MMbbls, leaving them hovering just above the 5-year average. Clearly, the tightness that we are seeing in the US gasoline market is spreading into other regions. And given that the driving season is still ahead of us, we would expect to see further declines in inventories, which should prove supportive for gasoline prices over the summer. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM European gas prices came under pressure yesterday. TTF fell by more than 3.7%, which saw the market settling at its lowest levels since the start of the war. European gas storage continues to improve due to strong LNG inflows. Storage in Europe is almost 41% full at the moment compared to a 5-year average of around 44% for this stage of the year. The gap between current inventories and the 5-year average continues to narrow. Assuming we go through injection season with no significant disruption to Russian gas flows, Europe should enter the next heating season with a comfortable inventory. However, this is a big assumption, and the risk of disruption is likely to continue to keep the market trading at historically high levels. US natural gas prices also came under pressure yesterday, selling off almost 2.7%. Weekly storage data shows that US gas storage increased by 89Bcf over the week, which was slightly higher than the 5-year average of 87Bcf. Agriculture The latest data from the Indian Sugar Mills Association shows that sugar production in India has increased to around 34.9mt so far this season. The association reported that around 116 sugar mills were still operating as of 15 May. ISMA maintained its export estimate at around 9mt for the current year, with around 8.5mt of export sales already made. The food ministry reported that sugar exports have increased to around 7.5mt as of 18th May, already surpassing last year’s 7.2mt of exports. The ministry estimates that around 3.5mt of sugar equivalent would be diverted to ethanol this year and expects this to grow with targets of around 6mt by 2025. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Read this article on THINK TagsSugar Russian oil ban Natural gas Gasoline shortage Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Follow FXMAG.COM on Google News
The Commodity Sector Has Dropped Significantly

The Commodity Sector Has Dropped Significantly

Saxo Bank Saxo Bank 12.09.2022 13:14
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, September 6. A week that saw a sharp deterioration in risk appetite with global stock markets responding negatively to concerns about global growth and sharply higher bond yields as central banks signalled willingness to hike rates agressively. The commodity sector dropped by more than 4% in response to these developments, resulting in a broad reduction in hedge funds positions, most notably in crude oil, natural gas, gold and soybeans Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to Tuesday, September 6. A week that saw a sharp deterioration in risk appetite with global stock markets responding negatively to concerns about global growth, not least in China where lockdowns spread again. In addition, the prospect of sharply higher rates by central banks to combat runaway inflation saw US bond yields spike while the Bloomberg Dollar Index hit a fresh record high.  Commodities The commodity sector dropped by more than 4% in response to the deteriorating growth outlook with the stronger dollar adding an additional layer of uncertainty. All sectors suffered losses led by energy and industrial metals and speculators reacted accordingly by cutting bullish bets across 19 out of the 24 major commodity futures markets tracked in this report. The 138k lots reduction was the result of 74k lots of longs being sold and 64k lots of fresh short positions being added. A development that supported the bounce that followed last Tuesday’s reporting deadline when the dollar reversed lower, thereby supporting a general recovery in risk appetite.   Energy:  Funds sold a combined 38k contracts of crude oil and fuel products in a week where China and global demand worries, as well as the stronger dollar helped trigger steep losses across the five crude oil and fuel product futures tracked in this update. In addition, the overall market participation continued to decline with the total open interest falling to 4.8 million contracts, the lowest level of open interest since November 2014.Crude oil drifted lower during the reporting week to last Tuesday and with key support not being challenged until the following day, the main change was a 17.5k lots reduction in the Brent gross longs while the WTI held steady with both and long and short positions seeing small increases. The natural gas net short more than doubled to 49k lots after the notoriously volatile contract slump around 10% below $8 per MMBtu just two weeks after hitting $10 per MMBtu for the first time in 14 years. Metals: The metal sector, led by gold, saw broad selling in response to multiple headwinds, the most important being the stronger dollar, rising treasury yields and China growth worries. The latter hitting copper and with that also silver, the result being additional short selling lifting the silver net short to a 40-month high at 24.6k lots. The overall net reduction of 30k lots was driven by a 4k lots reduction in longs and fresh short selling of 26k lots, a development which just like energy raised the risk of a short-covering rebound should the technical and/or fundamental outlook become more supportive. This is what happened after Thursday’s ECB meeting and verbal intervention by Bank of Japan officials helped weaken the dollar.   Agriculture Funds turned net sellers of the grain and soybean sector for the first time in six weeks. The relatively small 15k lots reduction was driven by reductions across the three soybean contracts. Buying of corn meanwhile extended to a sixth week while speculators maintained an overall short position in CBOT and Kansas wheat futures. In softs, some of the recent strong buying was reversed led by sugar and cocoa.   Forex Speculators responded to continued dollar strength in the week to September 6 by increasing bullish bets via the Dollar index and against nine IMM futures. The 10% jump in the combined dollar long to $20.2 billion, a five-week high, was primarily driven by heavy selling of GBP and JPY. The Sterling net jumped 63% to 50.4k lots ($3.6 bn) while the 3% depreciation of the JPY drove a 52% increase in the net short to 58.2k lots ($5.1 bn). It was however interesting to note that renewed EURUSD selling below parity helped attract the first major round of short covering in four weeks. Fading momentum and negative divergence between the falling price and rising RSI pointed to selling fatigue and traders growing wary ahead of Thursday ECB rate decision.  What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming       Source: https://www.home.saxo/content/articles/commodities/cot-commodity-short-sellers-left-exposed-as-dollar-drops-12092022
Brent Crude Oil Stayed Quite Strong Yesterday Rising 0.7%, But In The Near Future Commodites May Be Endangered By (USD) US Dollar's Dominance And More

Crude Oil Market Is Surely Looking Forward To The Fed Meeting, Crude Oil - 100MMbbls From SPR Will Be Sold By DOE

ING Economics ING Economics 20.09.2022 12:07
Markets have been trading in a fairly choppy manner, while sentiment remains relatively negative for risk assets. Participants will be focused on the Fed meeting later this week and expectations in the lead-up to the meeting have been fairly hawkish Energy - US SPR release The oil market continues to trade in a relatively choppy manner. ICE Brent traded in a US$4/bbl range yesterday, and managed to settle higher on the day, after trading weaker earlier in the session. A weaker USD would have provided some support to oil prices. However, like for most risk assets, market participants will be waiting for some clarity from the Fed when it meets later this week. The big question is how aggressive will it be in terms of hiking. Our US economist is of the view that we will see the Fed hiking by 75bps at this week’s meeting. Also not helping sentiment in the oil market at the moment is the weakness that we are seeing in refinery margins. Margins have come under pressure, with reports that China could release 15mt of export quotas for refined products. The refined product market, particularly middle distillates, has faced significant tightness for much of the year, and so increased Chinese supply would be welcomed by many in the market. The US Department of Energy (DOE) announced that it will be selling an additional 10MMbbls of crude oil in November from its Strategic Petroleum Reserve (SPR). This sale would be part of the Biden administration’s announcement back in March to release stocks from the SPR to combat higher prices. Under that initial announcement the DOE authorized the release of 180MMbbls of crude oil from the SPR. According to the DOE, roughly 155MMbbls has been released up until now - this further sale would take the total volume to around 165MMbbls. According to Bloomberg the UAE is wanting to bring forward its plans to increase crude oil production. Adnoc is wanting to have the capacity to pump 5MMbbls/d of oil by 2025, rather than by 2030 as previously planned. The UAE currently has production capacity of a little over 4MMbbls/d - due to the OPEC+ supply deal, production is closer to around 3.16MMbbls/d at the moment. Agriculture – Ukraine grain exports According to the latest update from the United Nations, almost 3.9mt of agricultural products have been exported from Ukrainian Black Sea ports under the export corridor deal since early August. Corn makes up almost 50% of these exports, whilst wheat makes up around a quarter of exports under the deal. Latest trade data from China shows that corn imports dropped 44.% YoY to 1.8mt in August, while YTD imports are down 21% YoY to total 16.9mt. Among other grains, China’s wheat imports fell 25% YoY to 530kt over the month, while cumulative imports declined 10% YoY to total 6.25mt over the first eight months of the year. The USDA’s weekly export inspection data shows the demand for US grains remained strong over the last week. US weekly inspection of corn for exports rose to 549kt over the last week, up from 474kt in the previous week and 403kt from the same time last year. Similarly, soybean shipment inspections rose to 519kt over the last week, compared to 342kt from a week ago and 279kt at the same time last year. Read this article on THINK TagsUS Federal reserve UAE SPR Oil Grains Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
fxpro-1-crude

The Commodities Feed: Bearish macro keeps pressure on oil

ING Economics ING Economics 27.02.2023 10:45
The oil market was softer this morning as macroeconomic concerns and a firm US dollar weighed on sentiment. Russian oil supply to Poland via the Druzhba pipeline halted over the weekend although the country has ruled out any major impact in the immediate term Energy: Supply interruptions from Druzhba pipeline Oil prices came under pressure in morning trade today after closing higher at the previous two consecutive sessions amid USD strengthening and macroeconomic concerns. The latest inflation report from the US has renewed concerns over higher interest rates by the Federal Reserve in the near term and overshadowed the supply outages from the Druzhba oil pipeline in Europe. PKN Orlen SA (the largest oil company in Poland) said that oil flows stopped unexpectedly via the Druzhba pipeline from Russia over the weekend. The pipeline has supplied around 400Mbbls/d of crude oil into Europe, mainly to Poland in recent months. However, the company said that end-users won’t be impacted by the halt in the immediate term as the Russian crude makes up only around 10% of the total supply; although longer disruptions to the transit route could have some impact. The latest data from Baker Hughes shows that the US oil rig count declined for a second consecutive week, by seven over the last week to a total rig count of 600. The number of active rigs in the US has been falling gradually since the start of the year. This is not a great signal for the market in terms of US supply growth, particularly with the tighter supply outlook from Russia.  The latest market positioning data shows that money managers trimmed their net long position in ICE Brent over the last week after hitting a one-year peak. Managed money net longs in ICE Brent dropped by 23,355 lots over the last week to 276,553 lots as of 21 February. Speculative net longs in ICE Brent are still comfortably higher when compared to the range over the past year and reflect the possibility of further liquidation if economic expectations deteriorate. Money managers reduced the net long position in NYMEX WTI by 3,986 lots over the last week to 184,488 lots. Metals: US to impose steep tariffs on Russian aluminium On Friday, the United States announced it will impose a 200% import tariff on Russian aluminium (effective from 10 March) and aluminium products made with metal smelted or cast in Russia (effective from 10 April). The tariffs are unlikely to significantly tighten the aluminium market in the US, given the nation’s small percentage share of aluminium imports from Russia. US purchases of aluminium products from Russia fell to about 200,000 tonnes last year, just 3% of total US imports - a small fraction of the global market of around 90 million tonnes. The move marked the one-year anniversary of Russia’s invasion of Ukraine. We discussed this in a note released on Friday. Meanwhile, the cash/3m spread for aluminium tightened to a contango of US$50.5/t as of Friday following the large inflows reported recently in exchange warehouses; for comparison, the market traded at a contango of US$35.5/t at the start of the year. The LME exchange inventories of aluminium witnessed inflows of 116,350 tonnes since the start of the year, taking the total stocks to 563,600 tonnes as of Friday. The latest data from the Shanghai Futures Exchange (ShFE) shows that weekly inventories for copper and aluminium rose marginally while lead stocks declined over the last week. SHFE Copper stocks rose 2,857 tonnes last week to 252,455 tonnes (highest since April 2020), whilst aluminium inventories gained 4,504 tonnes over the week to 295,920 tonnes at the end of last week. Lead weekly stocks fell by 38% WoW (-29,210 tonnes) to 48,006 tonnes (lowest since the first week of January) as of Friday. Agriculture: ISO trims global sugar surplus estimates In its latest quarterly report, the International Sugar Organization (ISO) revised down the 2022/23 global sugar surplus estimates to 4.15mt, compared to its earlier estimates of 6.19mt of surplus. The revision reflects the fall in production in India, Mexico, and Europe amid increased consumption. Global production estimates were reduced by 1.7mt to 180.4mt for the season. The organisation has also revised higher the market deficit estimates for 2021/22 from 1.67mt to 2.25mt. As per the Indian food ministry, the State-run Food Corporation has sold around 1.81mt of wheat in the domestic market to ease local grain and flour prices. The move is part of the government's ongoing plan to supply 5mt of grains to the market to help end users combat rising prices.  The USDA’s weekly net export sales report showed a fall in demand for corn and soybeans while wheat shipments increased for the week ending on 16 February. US corn shipments plunged to 848.7kt, lower than the 1,124.5kt reported in the previous week as well as below the average market expectation of 1,006kt. Similarly, soybean exports fell to 556.6kt, lower than 771.9kt in the previous week, and the average market expectation of 738kt. For wheat, the shipments rose to 418.8kt, higher in comparison to the 232.8kt reported a week ago and above the average market expectation of 259kt.  Reports from the European Commission show that the EU’s soft wheat production for the 2022/23 season is projected at 126mt, slightly lower than the January estimates of 126.4mt. Meanwhile, the exports are now seen at 32mt, lower when compared to the 34mt of exports projected in December. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: El Nino weighs on agriculture supplies

ING Economics ING Economics 07.03.2023 10:53
Australia could see agriculture production and exports fall significantly in 2023/24 due to dry weather as a result of El Nino. China’s soybean imports have increased to fresh highs reflecting healthy demand for the oilseed, but the country's crude oil and unwrought copper imports were softer Energy: China's crude oil imports slow Crude oil traded relatively flat with a positive bias yesterday as supply concerns and a weaker US dollar provided support to an otherwise dull market. The broader commodity complex is also tracking Federal Reserve Chair Jerome Powell's testimony this week which could provide further clues for the broader economy and USD. China’s latest oil trade data hints at softer domestic demand which could weigh on sentiment in the short-to-medium term if imports do not recover. The latest trade data from China shows that crude oil imports in the nation remained weak at the start of the year as refiners eased purchases ahead of the Lunar New Year holiday. Oil imports fell 1.3% year-on-year to 84.1mt (10.44MMbbls/d) over January and February. For refined products, fuel exports from the country increased 74% YoY to 12.7mt over the first two months of the year whilst imports were up only around 14% YoY to 5.3mt. Supply constraints on Russian refined products appear to have supported demand for Chinese fuel products. Looking ahead, China’s crude oil imports could recover over the next quarter as industrial activity picks up and refiners rebuild their stocks. The port of Corpus Christi in the US is finishing up a capacity expansion project at some of the ship channels that will allow ships to load more cargo. The work is likely to be completed by end-April and will benefit terminals at the Ingleside division. Once finished, crude oil loading capacity could increase by up to 25% (a supertanker can load 1.6MMbbls compared to the current 1.2MMbbls) at the shipping channel. The company plans to deepen other ship channels by 2024 to increase overall crude oil loading capacity from the port. Metals: Mixed trade data from China China released its preliminary trade data for metals this morning which shows total monthly imports for unwrought copper fell 9.3% YoY to 879kt over the first two months of the year largely on account of the resurgence of Covid cases in early December which disrupted industrial activity. Meanwhile, higher global prices and China’s Lunar New Year holidays also impacted overall demand for copper in the country. Imports of copper concentrate rose 11.7% YoY to 4.64mt over the same period. In ferrous metals, Iron ore imports rose 7.3% YoY to 194mt during Jan’23-Feb’23. On the exports side, China’s unwrought aluminium and aluminium products shipments fell 14.8% YoY to 880kt over the first two months of the year. Exports of steel products jumped 49% YoY to 12.19mt from Jan’23-Feb’23.  In mine supply, MMG’s Las Bambas mine in Peru could restart copper shipments this week as protests ease. Peru’s energy and mines ministry reported that the government has been taking steps to improve communication between mining companies, the labour force and local communities to ease tensions and take appropriate measures to resolve all concerns. Peru is one of the major producers of copper and zinc and local protests have been a major supply risk for these metals. Read next: In crude oil, we are increasingly likely to see a year of two distinctive halves| FXMAG.COM As per the latest reports, Yunnan’s government has prioritised aluminium smelting projects in its list to develop the energy-intensive industry this year, despite the ongoing power shortages resulting in production cuts. As per the government’s latest statement, two aluminium projects with a combined annual capacity of about 4mt were on the list, along with more than 140 other projects from other sectors. According to Shanghai Metals Market (SMM), one of the projects with an annualised capacity of 2.03mt is nearly done and about half of the capacity is already operational. Agriculture: Tight supplies from Australia In its first estimates for 2023/24, ABARES estimates Australia’s agriculture supply to drop significantly next year due to dry weather as a result of El Nino. Among major crops, the department expects total wheat output to drop from 39.2mt in 2022/23 to just 28.2mt in 2023/24 whilst exports will also decline from 28mt to 22.5mt. Among other crops, sugar exports could fall 6% YoY to 3.5mt whilst canola exports could fall from 6.9mt in 2022/23 to 4.9mt in 2023/24. The latest trade numbers from Chinese Customs show that cumulative imports of soybean in China rose 16.1% YoY to 16.17mt over the first two months of the year, a record high for this time of the season. Healthy demand for soybean and concerns over a delayed harvest in Brazil pushed up imports of soybeans in the country. Meanwhile, the latest data from Ukraine’s Agriculture Ministry shows that the nation exported around 33mt of grains as of 6 March so far in the 2022/23 season, a decline of 27% compared to the 44.8mt of grain exported during the same period last year. Total corn shipments stood at 19.1mt (-6% YoY), while wheat exports fell 38% YoY to 11.4mt as of Monday. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: Brent falls

ING Economics ING Economics 15.03.2023 10:37
Brent has traded to its lowest level since December as a result of broader macro concerns. Outside influences are likely to remain a key driver for oil price direction in the short term Energy - Further pressure on oil The oil market had yet another volatile day with ICE Brent settling more the 4% lower yesterday, which saw the market trade to its lowest level since December. Markets have had to grapple with the SVB collapse and its broader implications on the banking system. Financial markets are having to balance this with US core inflation for February coming in stronger than expected. This makes it increasingly difficult to second-guess what the Fed may decide to do at its FOMC meeting next week. Much will likely depend on whether calm is restored to financial markets. Inventory data from the API show that US crude oil inventories increased by 1.16MMbbls over the last week, while stocks at Cushing fell by 946Mbbls. Gasoline and distillates saw bigger moves. Inventories fell by 4.59MMbbls and 2.89MMbbls respectively. Overall the numbers are supportive. The crude build came in slightly lower than expected, whilst the draws in refined products were larger than the market was expecting. Read next: Pfizer Will Buy Biotech Seagen For $43 Billion| FXMAG.COM OPEC released its latest monthly market report yesterday, which reported that OPEC production in February increased by 117Mbbls/d to 28.92MMbbls/d. This increase was driven predominantly by Nigeria and Saudi Arabia - their output increased by 72Mbbls/d and 59Mbbls/d respectively. The group also left its non-OPEC oil supply growth estimate for 2023 unchanged at 1.44MMbbls/d, while global demand growth estimates for the year were also left unchanged at 2.32MMbbls/d. OECD oil demand is expected to grow by just 230Mbbls/d YoY, whilst non-OECD demand is forecast to grow by 2.09MMbbls/d. This is largely on the back of expectations of a strong demand recovery from China. The call for OPEC oil supply in 2Q23 is forecast at 28.62MMbbls/d, roughly 300Mbbls/d below current OPEC output. While for the full-year 2023, the call on OPEC production is estimated to be 29.26MMbbls/d. The IEA will release its latest monthly market report later today. Bloomberg reports that Estonia, Lithuania and Poland are pushing for the price cap on Russian crude oil to be lowered from US$60/bbl to US$51.45/bbl. This would put the cap below current market levels, at least prior to yesterday’s sell-off. Urals are reportedly trading at a US$24 discount to dated Brent. The price cap is set for review this month.   Metals – Peru's copper exports slump Peru’s copper output fell 21% MoM to 198.6kt in January following a wave of social unrest, which also resulted in lower copper shipments for the month. Shipments of copper were down 25% from January last year, totalling $1.25 billion. Total mining exports were down 20% year-on-year. However, copper production was steadier, declining just 0.3% YoY.  Zinc output declined 6.9% YoY in January. Miners in the Philippines are not in favour of Indonesia’s plan to create an OPEC-like group to coordinate supply, the Philippine Nickel Industry Association said. The Philippines is the world’s second-largest nickel producer. Indonesia has proposed a producer alliance, including Australia, Brazil and the Philippines, as part of the country’s goal of adding more value domestically and becoming a key part of the battery supply chain. Nickel from the Philippines is of a lower quality than Indonesia’s and it has smaller reserves, which would make it difficult to attract funds, the Philippine Nickel Industry Association said. Australia’s major mining association and Canada’s trade minister also rebuffed the idea. Agriculture – EU soft wheat shipments Negotiations for the Black Sea grain export deal continue, although talks are proving more difficult than expected. Russia continues to push for just a 60-day extension to the deal, while other parties involved, including obviously Ukraine, are pushing for an extension of 120 days, like previous deals. This has provided some support to wheat prices with CBOT wheat settling more than 2% higher yesterday. Weekly data from the European Commission show that soft wheat shipments from the EU rose 8.6% YoY to reach 21.5mt as of 12 March. Morocco, Algeria and Egypt were the top destinations for these shipments. Meanwhile, EU corn imports stand at 19mt, up from 11.8mt last year. These stronger inflows are a result of weaker domestic supply this season. Read this article on THINK TagsRussian oil price cap OPEC Oil Nickel IEA Grains Copper Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
IG analyst to FXMAG.COM: In my opinion commodity prices already reflect higher oil prices

The Commodities Feed: Speculators pull back

ING Economics ING Economics 20.03.2023 10:00
The oil market has come under significant pressure and has seen increased volatility over the last week due to external developments. This volatility is likely to continue this week with broader markets still nervous and uncertain over the outcome of the FOMC meeting Energy - Specs cut their Brent net long Broader market concerns weighed heavily on the oil market last week, while fundamentals have clearly not been strong enough to prop up the market. ICE Brent finished the week almost 12% lower, leaving the market at its weakest level since December 2021. Volatility is likely to linger this week, with broader financial market concerns likely to remain at the forefront. In addition, we have the FOMC meeting this week, which adds further uncertainty to markets.  External developments and a softer supply & demand balance have led us to cut our price forecast last week. While we still expect the market to trend higher over the course of the year, $100/bbl plus Brent is less likely. It shouldn’t come as too much of a surprise that there was significant liquidation in oil from speculative longs over the last reporting week. The latest positioning data shows that speculators cut their net long in ICE Brent by 64,907 lots to 233,384 lots as of last Tuesday. This move was predominantly driven by longs liquidating  - 49,465 lots sold - although 15,442 lots of fresh shorts were also added. Given that the sell-off in the oil market has continued since last Tuesday, current speculative positioning is likely even smaller. While the crude oil market has come under pressure over the last week, refined products have held up better. Refinery margins have strengthened over the week with most cracks moving higher. The scale of the sell-off in crude oil explains some of the strength in refinery margins, but continued strike action in France, which is affecting energy infrastructure, including refineries, will also be providing some support to the products market. Read next: Dollar funding solutions get beefed up| FXMAG.COM The second batch of Chinese trade data released over the weekend shows that middle distillate exports over February increased further YoY. Diesel exports in February totalled 2.15mt, up about ten-fold YoY, whilst jet fuel exports came in at 1.31mt, up almost 96% YoY. These gains were not unexpected, given the increase in export quotas, and have helped to ease tightness in middle distillates. However, how these flows evolve through the year will really depend on how strong a recovery we see in domestic demand. Meanwhile, LNG imports in February came in at 5.21mt, up 8.2% YoY. This leaves LNG imports over the first two months of the year at 11.12mt, down 11.9% YoY. Metals – LME invalidates nickel warrants after irregularities The LME said it has found irregularities in the metal underpinning nine nickel contracts. The amount of the metal represents just 0.14% of live nickel inventories on the LME, it said in a statement. The exchange discovered bags of stones, Bloomberg reported, instead of the nickel that underpinned a small number of its contracts at a warehouse in Rotterdam. The issue affected nine contracts, representing 54 tonnes of nickel. The exchange said the issues were discovered after it received information that a number of physical nickel shipments, out of one specific facility of an LME-licensed warehouse operator, have been subject to irregularities. This will add to troubles for the LME, which has struggled to regain confidence in its global benchmark nickel contract ever since the short squeeze in March last year when fears of sanctions on Norilsk Nickel coincided with a huge short squeeze, forcing the exchange to suspend trading for a week and cancel billions of dollars’ worth of nickel trades. The exchange also said that it will postpone a resumption of Asian trading hours for nickel by one week. It had been due to restart on Monday and was expected to provide a significant boost to liquidity. The news comes weeks after Trafigura said it is facing more than half a billion dollars in losses in what it believes is a systemic fraud against it involving missing nickel cargoes. The trader said the LME announcement has no connection with its fraud case and it does not own any of the nine warrants that have been invalidated by the LME. Agriculture – Black Sea grain deal extended The latest reports suggest that the deal that allowed exports of Ukrainian grain through the Black Sea was extended over the weekend (just before its expiration date). However, the agreed tenure for the deal extension still remains uncertain. There are mixed statements from the parties involved in the negotiations, Ukraine said it had been extended for 120 days while Russia said that they agreed to extend the deal only for 60 days. Despite the confusion over the duration of the extension, grain markets are still trading somewhat softer in early morning trading today. The latest data from the Indian Sugar Mills Association (ISMA) show that Indian sugar production fell marginally to 28.2mt so far this season through until 15 March. Cumulative output stood at 28.5mt at the same stage last year. Mills are ending operations at a quicker pace than last year with ISMA reporting that just 336 mills were crushing cane by mid-March compared to 438 mills at the same time last year. Uncertainty over where output will end this season has meant that the government is reluctant to issue further export quotas for this season. The Buenos Aires Grain Exchange slashed its forecast for the 2022/23 Argentine soybean crop to 25mt, which would be down from 43.3mt last season and the smallest crop since at least 2001. The extended drought combined with high temperatures continues to hurt yields across a large part of the growing region. The exchange also trimmed its corn production estimates by another 4% to 36mt for 2022/23. Read this article on THINK TagsSugar Speculators Russia-Ukraine Oil Nickel Grains China trade Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Is Gold Ready to Shine Again? US CPI and Fed Policy Insights

The Commodities Feed: Gold benefits from haven demand

ING Economics ING Economics 21.03.2023 09:36
Broader market concerns are having the impact you would expect, risk assets, including the bulk of the commodities complex, are coming under pressure, while gold is benefitting from stronger safe-haven demand. This week’s FOMC meeting will be important for where markets go next Source: Shutterstock Energy - TTF breaks below EUR40/MWh Price action in the oil market yesterday was choppy with direction once again dictated by broader market worries, given developments in the banking sector. ICE Brent fell towards US$70/bbl but managed to hold above this level and in fact settled more than 1.1% higher on the day. Timespreads have weakened along with the broader flat price weakness in recent days. The prompt ICE Brent spread has fallen from more than a US$0.60/bbl backwardation to around US$0.20/bbl recently. This weakness is not isolated to the prompt spread with weakness across the forward curve. A flattening in the curve suggests the market is less worried about tightness in the physical market. This will likely be a result of Russian supply holding up better than expected, while demand concerns will not be helping. European gas prices came under further pressure yesterday. TTF fell by more than 8% on the day, which saw it settling below EUR40/MWh - the lowest level since July 2021. Europe has already started to see injections, which has seen storage levels edge higher over the last couple of days. EU storage is about 56% full and with the heating season officially over in less than 2 weeks, it is very likely it ends with storage above 50%. We will need to keep an eye on domestic consumption and see how it responds to the lower price environment. Already, if we look at German gas consumption data for week 10 of the year, it was down just 3% from the 2018-21 average. Metals – Gold tops $2,000/oz for first time in a year Spot gold briefly broke above $2,000/oz yesterday for the first time since March 2022, on the back of haven demand amid continued fears over the global banking sector. Last week gold ETF holdings increased by more than 700koz to 92.52moz. Wednesday’s FOMC meeting will be important for gold and broader markets with plenty of uncertainty over what the Fed may do given current market developments. A pause in hiking would likely provide a further boost to gold prices. Read next: Asia Morning Bites - 21.03.2023| FXMAG.COM Daily average global aluminium production rose to 188,300 tonnes in February, up from 187,800 tonnes in January and 2.67% higher YoY, according to the International Aluminium Association (IAI). Total output over the month was 5.27mt. Aluminium production in Western and Central Europe is still under pressure,  falling 9.1% MoM and 10.8% YoY to 209kt in February. Chinese estimated production came in at 111,000 tonnes/day, up 0.35% MoM. Agriculture – US weekly grain inspections rise The USDA’s weekly export inspection data for the week ending 16th March showed that the demand for US grains remained strong over the last week. US weekly export inspections of corn rose to 1,188.7kt compared to 1015.2kt in the previous week, but lower than the 1,496.8kt reported a year ago. US soybean inspections rose to 716.6kt, up from 633.4kt a week ago and 556.6kt a year ago. And US wheat export inspections stood at 374.2kt, higher than the 256.9kt seen in the previous week and 335.1kt a year ago. The latest data from the Uganda Coffee Development Authority shows that Uganda shipped 478,646 bags of coffee in February, up 6.3% YoY as exporters unloaded stockpiles citing high global prices. Robusta accounted for 78% of the total exports. However, coffee exports for the season are still down 4.5% YoY to a total of 2.29m bags so far. In its latest monthly crop-monitoring report, the European Commission revised higher its total wheat yield estimate to 5.77t/ha for the 2022/23 season, this is above the 5.57t/ha seen last year and the 5-year average of 5.59t/ha. The report further highlighted that winter crops are in fair to good shape across most of Europe, after the mild winter. However, partially expanding and intensifying dry conditions in southern parts continue to threaten overall crop conditions. Read this article on THINK TagsOil Natural gas Grains Gold Coffee Aluminium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Synthetic fuels could be the answer to shipping's net-zero goals, but don’t count on them yet

The Commodities Feed: FOMC day - 22.03.2023

ING Economics ING Economics 22.03.2023 14:03
Price action today will likely be largely dictated by the outcome of the FOMC meeting. It is still unclear whether the Fed will hold rates or hike. Recent developments in the banking sector make it a tough call Energy: Market awaits FOMC Oil prices rebounded yesterday with ICE Brent rallying by a little more than 2% as markets took comfort in comments from the US Treasury Secretary, Janet Yellen, that the government would be prepared to take further action to protect depositors in small US banks, although prices have weakened somewhat in early morning trading today.  Overnight, the API reported that US crude oil inventories increased by 3.26MMbbls, whilst on the products side, gasoline and distillates saw draws of 1.09MMbbls and 1.83MMbbls respectively. However, key for markets today will be the FOMC meeting amid continued uncertainty over whether the Fed will hold rates or hike by 25bp. Russia has said that the previously announced oil supply cuts of 500Mbbls/d for March will be extended until the end of June given current market conditions. Although, there is doubt over whether Russia has reduced output in March, given that seaborne crude exports have held relatively steady so far this month. Meanwhile, it appears unlikely that the G7 will revise the Russian oil price cap, with reports that some officials are reluctant to take such action. The cap was set to be reviewed in March and some EU countries (Poland) have been pushing for the price cap to be lowered from the current US$60/bbl. There are signs that the European gasoil market is tightening. The prompt ICE gasoil timespread is trading in backwardation of around US$30/t, up from around US$15/t at the start of March. This will be largely on the back of lower runs from French refiners. Continued strike action in France is affecting fuel deliveries and causing some refiners to halt or reduce operations. Total has halted its 247Mbbls/d Normandy refinery, whilst the remainder of Total and Exxon refineries are all operating below capacity. Metals: China imports of Russian aluminium climb China has nearly doubled its imports of Russian aluminium in the year since the invasion of Ukraine. Imports of refined aluminium from Russia, the largest aluminium producer after China, climbed 94% to 538,600 tonnes between March 2022 and February 2023 from the previous 12 months, according to Chinese customs data. This has happened as some Western buyers have rejected Russian supplies in their contracts. Read next: Softer Federal Reserve could play in favour of S&P 500 index| FXMAG.COM LME total on-warrant stocks for copper reported outflows of 5,500 tonnes (the biggest daily decline since 8 December) to 43,500 tonnes as of yesterday. Most of the outflows were reported from warehouses in Europe and Asia. Meanwhile, cancelled warrants for copper rose by 4,975 tonnes for a second consecutive session to 32,900 tonnes as of yesterday, signalling potential further outflows. Agriculture: Ukraine 2023 grain harvest to fall Ukraine’s Agriculture Ministry expects the 2023 grain harvest to fall by 17% year-on-year to 44.3mt as farmers reduce area, while average yields are also expected to be lower. The ministry estimates that domestic wheat output will fall by 19% YoY to 16.6mt, whilst the corn harvest is expected to fall 15% YoY to 21.7mt. The latest export data from Ukraine’s Agriculture Ministry shows that 2022/23 grain exports stood at 35.8mt as of 21 March, a decline of 20% YoY. Total corn shipments stood at 21mt (+2% YoY), whilst wheat exports fell 34% YoY to 12.3mt. Read this article on THINK TagsRussian oil price cap Refined product Oil Grains Diesel Copper Aluminium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Synthetic fuels could be the answer to shipping's net-zero goals, but don’t count on them yet

The Commodities Feed: Further spec liquidation

ING Economics ING Economics 27.03.2023 12:09
Given the moves seen in the oil market in recent weeks, it was no surprise that speculators aggressively cut their net long in the oil market. Meanwhile, EU energy ministers meet this week to discuss an extension in voluntary gas demand cuts, while for LME nickel, Asian trading hours finally resume today, following the short squeeze in March last year Source: Shutterstock Energy - Speculators cut further longs Despite the weakness in the oil market towards the end of last week, ICE Brent still managed to settle almost 2.8% higher WoW and more importantly, hold above US$70/bbl in the recent sell-off. Price action in early morning trading today is looking more positive with both Brent and WTI trading stronger. It shouldn’t come as too much of a surprise that positioning data shows that speculators once again cut their net long in ICE Brent significantly. The managed money net long fell by 63,459 lots over the last reporting week to 169,925 lots as of last Tuesday. This reduction was driven largely by longs liquidating (42,880 lots), but there was also a fair amount of fresh shorts added (20,579 lots). The latest data show that most of the gross longs that we saw added over January and February have now been closed out.  Given the more neutral spec positioning, this leaves speculators with quite a bit of room to push the market higher. Although, obviously for that, we will need to see a change in sentiment and an easing in concern over recent developments in the banking sector. There are reports that Nigeria is finding it difficult to find buyers for its April loadings of crude oil. Bloomberg reports that somewhere between 20-25 shipments are still unsold for the month. This comes at a time when strike action in France (which is a relatively large buyer of Nigerian crude) has led to refiners reducing runs, which obviously weighs on crude oil demand. In addition, some seasonal maintenance is ongoing at several European refiners, which will not be helping matters. Read next: US Banks: The good and the bad| FXMAG.COM EU energy ministers are set to meet this Tuesday to discuss a number of topics, including natural gas demand reductions. The 15% voluntary demand reduction agreed upon last year, is set to expire at the end of March. The current proposal sees the 15% voluntary demand cut extended through until March 2024. Our balance suggests that from April 2023 through to March 2024, the EU will only need to see around a 10% demand cut to ensure a comfortable supply/demand picture for the region. Metals – LME aluminium on-warrant stocks decline LME on-warrant aluminium stockpiles fell by 4,825 tonnes for a fifth consecutive day to 426,975 tonnes on Friday, the biggest fall since 10 March. Most of the outflows were reported from warehouses in Asia. Net outflows for the week totalled 10,925 tonnes as of last week compared to the inflows of 10,825 tonnes a week earlier. Meanwhile, exchange inventories declined for the fifth straight session, falling by 6,625 tonnes to 532,725 tonnes at the end of last week. Data from the Shanghai Futures Exchange (ShFE) shows that weekly exchange inventories for aluminium declined by 18,170 tonnes to 293,291 tonnes as of Friday. This was the first weekly decline in stocks since December. Among other metals, copper stocks fell 11.6% WoW to 161,152 tonnes,  whilst lead inventories fell 25% WoW to 37,537 tonnes. The latest reports suggest that operations at the Las Bambas copper mine in Peru are back to normal, as MMG Ltd. confirmed over the weekend that ‘the mining processing and transport of concentrate is back to full capacity’ following the end of roadblocks by community protestors. Chinese refined nickel net imports have slumped to near a record low after domestic producers ramped up production levels. Data from Chinese Customs shows that net imports of refined nickel fell 85% MoM (lowest since October 2019) in February. The latest forecast from Mysteel shows that domestic refined nickel output may rise 39% YoY to 245.9kt in 2023 as smelters process Indonesian intermediate products and recycled material. The LME will resume Asian trading hours for its nickel contract from today. The LME will be hoping that this leads to a boost in volumes and helps to improve liquidity. Asian trading hours for the LME nickel contract were suspended last year following the significant short squeeze seen in the market in March last year. Agriculture– Ivory Coast cocoa shipments slow The latest reports from the International Cocoa Organization (ICO) show that cocoa exports from the top producer, Ivory Coast, stood at 540kt between October 2022 to January 2023, down 9.3% YoY. Total arrivals of beans at ports in the Ivory Coast for the season (as of 19th March) were 1.75mt, down from 1.82mt from the same period last year. The latest CFTC data shows that money managers reduced their net bearish bets in CBOT wheat by 8,757 lots over the last week to 86,500 lots as of 21 March. The move was predominantly driven by short covering. Similarly, the speculative net short in CBOT corn decreased by 12,238 lots to 41,896 lots, while for soybeans, speculators reduced their net longs by 16,875 lots, leaving them with a net long position of 110,786 lots. Read this article on THINK TagsSpeculators Oil Nickel Natural gas Cocoa Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: EU extends gas demand cuts

ING Economics ING Economics 29.03.2023 12:49
Oil prices remain well supported with ongoing supply disruptions from Iraq. Meanwhile, EU energy ministers have agreed that voluntary gas demand cuts will be extended by another year Gas storage tank Energy - supply concerns linger Oil prices remained well supported yesterday and continue to be in early morning trading today. Supply concerns continue to prop up prices. Iraqi oil flows via Turkey have still not resumed following a legal ruling last week that ruled in favour of the Iraqi government. The Iraqi government believes that Kurdish oil should not be exported via Turkey without Iraq’s approval. The volumes affected are fairly large at around 400Mbbls/d. Talks have so far failed to reach an agreement. There are reports that the US is pushing the parties involved to resume these oil flows. Providing further support to the oil market overnight was bullish inventory data from the API. US crude oil inventories are reported to have fallen by 6.1MMbbls over the last week - quite different from the small build the market was expecting. Meanwhile, crude oil inventories at Cushing also declined by 2.4MMbbls. Product inventory changes were also constructive, particularly for gasoline, with stocks falling by 5.9MMbbls. The more widely followed EIA report will be released later today. EU energy ministers met yesterday and agreed that the voluntary 15% natural gas demand cut will be extended by 12 months through until the end of March 2024. These voluntary cuts were scheduled to expire at the end of this month. As before, these voluntary cuts could become compulsory if the EU gas market was to tighten significantly. Our balance sheet shows that the EU will not need to see cuts as large as 15% from April onwards. Instead, we believe a 10% demand cut will be enough. The European Commission is also looking at a way of tackling Russian LNG flows into Europe. Whilst Russian pipeline flows have fallen significantly since the war, LNG imports from Russia have grown significantly. Russian LNG flows to Europe last year totalled around 22bcm, up more than 37% YoY. The EU is looking at giving members the option to block Russian firms from booking capacity at import terminals. This would basically give member countries the option to block Russian LNG imports, without the region having to impose sanctions.   Metals – Dollar weakness lifts prices Industrial metals edged higher yesterday with LME copper prices approaching the $9,000/t mark as the USD continued its decline for a second straight session, while risk sentiment appears to also be improving. The latest LME COTR report shows that investors reduced their net bullish positions for aluminium by 5,833 lots to 91,578 lots, whilst net long positions in zinc fell by 1,639 lots to 30,892 lots (the lowest in four months) as of last Friday. In contrast, speculators increased net long positions in copper by 3,947 lots (after falling for two consecutive weeks) to 47,218 lots in the week ending 24 March. Read next: Hungary’s central bank ain’t got no room for change| FXMAG.COM Iron ore prices continued their recovery yesterday amid expectations of stronger Chinese steel consumption as the peak construction season starts. Tighter supply has also provided support to the market. Daily exports of iron ore from Brazil have been down so far in March. The latest data from Brazil’s economy ministry shows that daily average exports of iron ore reached 1.14mt/d in the first 18 business days of March, compared to shipments of 1.3mt/d last month and 1.31mt/d in March 2022. Fortescue Metals Group now expects the first output from its Iron Bridge Magnetite Project in the second half of April. Previously, the company said that production would start at the project at the end of 1Q23. The mine is expected to produce 22mtpa of high-grade 67% iron magnetite concentrate. Agriculture –Indonesia's 2023 coffee output to fall The Association of Indonesian Coffee Exporters and Industries expects domestic coffee production to fall 20% YoY to 9.6m of 60kg bags this year, down from 12m bags in 2022 due to severe rainfall. The group further added that Indonesia’s bean exports are projected at 250kt in 2023, down from 320kt in 2022. The latest data from Ukraine’s Agriculture Ministry shows that 2022/23 grain exports stood at 36.9mt as of 27 March, a decline of 17.7% YoY. Total corn shipments stood at 21.7mt (+6.7% YoY), while wheat exports fell 31.4% YoY to 12.6mt. Read this article on THINK TagsSpeculators Oil Natural gas LNG Iron ore Grains Copper Coffee Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Commodities Feed: Supply disruptions persist

The Commodities Feed: Supply disruptions persist

ING Economics ING Economics 30.03.2023 09:26
Oil prices traded lower yesterday despite a fairly bullish EIA inventory report and Kurdish supply concerns lingering Source: iStock Energy - Kurdish oil flows still blocked The oil market edged lower yesterday, despite fairly constructive US inventory data from the EIA. US crude oil inventories fell by 7.49MMbbls over the last week, the largest draw in commercial inventories since November and only the second decline in stocks so far this year. However, at almost 476MMbbls, crude inventories remain around 26MMbbls above the 5-year average for this time of year. The draw was driven largely by a fall in imports, with crude oil imports falling by 847Mbbls/d WoW. Exports remained above 4MMbbls/d over the week. Refiners increased utilisation rates by 1.7pp to 90.3% - the highest levels seen so far this year. Despite the stronger refinery runs, gasoline inventories fell by 2.9MMbbls over the week. Implied gasoline demand increased by 185Mbbls/d, taking gasoline demand in excess of 9.1MMbbls/d- the strongest levels so far this year. As a result, total US gasoline inventories stand at less than 227MMbbls,  the lowest levels seen at this stage of the year since 2014. Distillates saw a marginal build of 281Mbbls over the week. The US energy secretary has said the US could start refilling its strategic petroleum reserve (SPR) later this year, according to Reuters. Oil prices have recently traded in the price range (WTI- $67-72/bbl) where the US government had previously said it would look to start buying to replenish inventories. Due to maintenance and also the mandated release of 26MMbbls from the SPR, the government recently said it would be difficult to start refilling the SPR at the moment. Potential SPR buying was expected to provide somewhat of a floor to the market, but clearly that is not the case, at least in the near term. Read next: Today, the US GDP goes public. Eurozone inflation expected to reach 7.1%| FXMAG.COM The standoff with Kurdish oil flows via Turkey continues and the halting of pipeline flows has meant that producers in the Kurdish region have had to start reducing output. Producer, DNO has said it has started an orderly shutdown of its fields in the region. These include the shutting down of Tawke and Peshkabir, which produced 107Mbbls/d in 2022. The Kurdish and Iraqi authorities are still trying to work out an agreement which would allow roughly 400Mbbls/d of oil flows from the Kurdish region to resume. Metals – US cobalt mine halts construction The latest reports suggest that Jervois Global Ltd. will halt construction at its Idaho cobalt mine in the US, due to declining cobalt prices and rising construction costs. The company said that the project was nearing completion earlier this month and was expected to produce 2,000t/yr. Cobalt prices are down more than 30% YTD, trading just below US$35k/tonne. Agriculture –Thai sugar production lowered Recent estimates from the Thai Sugar Millers Corp. show that domestic sugar production will reach 11mt this season, 8.5% higher than the previous year. However, it was lower compared to the initial forecasts of 11.5mt of sugar in 2022/23. The harvest has essentially already ended, with latest data showing that millers have crushed 93.73mt as of 27 March, resulting in 10.93mt of sugar so far this season. Read this article on THINK TagsSugar SPR Oil EIA Cobalt Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: The OPEC+ JMMC meets next week

ING Economics ING Economics 31.03.2023 10:34
Improved risk sentiment has seen oil trade higher over the week, whilst supply concerns have only added further strength. OPEC+ meet early next week and we expect the Joint Ministerial Monitoring Committee (JMMC) to recommend no change to output policy Source: iStockphoto Energy- Gasoil stocks fall The oil market continues to strengthen, with ICE Brent in striking distance of US$80/bbl. Risk sentiment has clearly improved across broader markets this week, whilst the oil market also continues to deal with disruptions to Kurdish oil flows via Turkey. In addition to the strength in the flat price, the WTI/Brent discount (June contract) has narrowed to around US$4/bbl, after having traded close to a US$6/bbl discount in early March. Strike action in France would be contributing to this narrowing, given that refiners have had to reduce run rates, weighing on crude demand. The wide discount seen in the spread over recent months has helped to boost US crude oil exports - these could start to edge lower with the more recent narrowing of the spread. The latest data from Insights Global shows that refined product inventories in the ARA region increased by 11kt over the last week to 6.08mt. This increase was predominantly driven by jet fuel inventories, which increased by 119kt to 815kt. Gasoil inventories fell by 84kt WoW to 2.35mt. This is the fifth consecutive week of gasoil stock declines in the region. The loss of Russian supply (due to the EU ban on refined products) and French strike action will be partly why we are seeing these draws. Gasoil inventories remain above the 5-year average, but we suspect stocks will fall below average in the coming months. Looking to Asia, refined product inventories in Singapore fell by 1.69MMbbls over the week to 48.12MMbbls. Light distillate and residual fuel stocks declined by 1.44MMbbls and 470Mbbls respectively, whilst middle distillates increased by 224Mbbls WoW. The OPEC+ Joint Ministerial Monitoring Committee (JMMC) will meet on Monday to discuss the current market environment and outlook. We believe the group will recommend that OPEC+ stick to current supply cuts. The group would have taken comfort in the market appearing to have stabilised following the turmoil seen in financial markets over March. Metals – LME proposes changes to nickel contract The LME has proposed changes to its nickel operations, including making more forms of nickel deliverable and launching a new spot nickel market in China, in order to strengthen trading after a historic squeeze in March last year. The exchange is planning to implement the reforms over the next two years. In order to increase the amount of  class I nickel material eligible for delivery, the LME plans to expand forms of nickel that can be delivered against its contracts to include coarse nickel powder, which is favored in the production of batteries as it can be readily converted into nickel sulphate. Read next: German inflation drops but there’s no sign of broader downward trends| FXMAG.COM The bourse is also introducing a fast-track listing approach and fee waiver for new LME nickel brands with the aim of bringing more stock and liquidity to the contract. The exchange also plans to open a new spot market for nickel sulphate and nickel matte in China as an alternative pricing solution aimed specifically at the rapidly expanding class II nickel market. The LME will work with the Qianhai Mercantile Exchange (QME), which is owned by the LME’s parent, Hong Kong Exchanges and Clearing, to develop a China-based spot market offering for the two products in order to support these trade flows in Asia. The LME also said it remains open to introducing class II contracts to complement LME nickel as the underlying markets evolve. The LME nickel contract currently accepts full plate and cut cathodes, pellets, briquettes and rounds. Other key measures proposed include making daily price limits permanent, with revised limits for copper and aluminium set at 12% per day and introducing a monthly report on stocks stored off-exchange in LME-licensed warehouses that are eligible for delivery. It also plans further initiatives on reporting of over-the-counter positions and trade reporting and increasing liquidity on its electronic platform. Agriculture – EU sees recovery in 2023/24 corn output In its latest Cereals Market Situation report, the European Commission forecasts that EU wheat production will grow 4% YoY to total 138.35mt in 2023/24. Export volumes over the upcoming season are expected to remain unchanged YoY at 32.9mt. As a result, 2023/24 wheat ending stocks are forecast at 19.79mt, up from an estimated 16.35mt in 2022/23. EU corn output is expected to recover in 2023/24 to total just under 65mt, up from 52.05mt in the current season. This increase is on the back of expectations of improved yields.  Given higher domestic output, EU corn imports are forecast to total around 18mt in 2023/24, down from an estimated 23mt in 2022/23.  2023/24 ending stocks are forecast at 21.9mt, up from 18.55mt in the current season. Read this article on THINK TagsWheat Refined product OPEC+ JMMC Nickel LME Grains Gasoil Corn Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: Oil holds onto gains

ING Economics ING Economics 04.04.2023 11:07
The oil market continues to hold onto gains following the surprise supply cut announcement from a number of OPEC+ producers. These cuts should see the market tighten for the remainder of the year, pushing prices higher Source: Shutterstock Energy - Oil holds onto gains after OPEC+ supply cut shock The oil market has managed to hold onto yesterday’s gains after nine OPEC+ members announced surprise supply cuts over the weekend, amounting to 1.66m b/d. 500k b/d of these cuts are existing cuts from Russia, which were set to end in June and which have now been extended through until the end of the year. This leaves 1.16m b/d of cuts from other producers and, given that most of these producers are producing at or near their current production targets, suggests that actual cuts will be fairly similar to those announced . We had already expected the oil market to tighten over 2H23 and these cuts mean that the oil market will be even tighter for the remainder of the year. As a result, we now expect oil prices to trade above US$100/bbl over the second half of the year. The OPEC+ JMMC meeting yesterday was a non-event, with it confirming the cuts that were announced over the weekend. The OPEC press release re-emphasized the Saudi comment that the additional cuts announced over the weekend were a “precautionary measure aimed at supporting the stability of the oil market.” Metals – Copper cash/3m spread tightens The LME copper cash/3m spread traded out to an intraday higher of US$21/t backwardation yesterday, the highest levels seen since November. The strength in this spread has coincided with LME inventories trending lower since mid-March, re-igniting concerns over a tightening market. Chile, the top copper producer, reported that its February copper production fell to its lowest in six years. Chile accounts for a quarter of the world’s mined copper. Read next: FX Daily: Crisis playbook keeps dollar offered| FXMAG.COM In aluminium, LME on-warrant stockpiles fell by 7,025 tonnes for a second consecutive session to 419,800 tonnes on Monday, the biggest fall since 10 February, according to the latest data from the exchange. Most of the outflows were reported from warehouses in Singapore. Net outflows for March totalled 16,850 tonnes. Agriculture – Soybean gains on planting outlook and lower stocks CBOT soybean traded higher yesterday, following the USDA’s recent prospective plantings report, which showed that soybean planting estimates were largely unchanged year on year at 87.5m acres, lower than  market expectation of 88.3m acres. Further supporting the market was the quarterly grains stocks report which saw soybean stocks fall to 1.69bn bushels as of 1 March, down 13% YoY and lower than the market expectations of 1.73bn bushels. The USDA’s first weekly crop progress report for the season showed that the US winter wheat crop condition was poor for this point in the season due to severe drought in major producing regions. The agency rated around 28% of the winter wheat crop in good-to-excellent condition, compared to around 30% a year ago. The USDA also reported that domestic corn plantings have started at the usual pace, with around 2% planted for the week ending 2 April. Read this article on THINK TagsUSDA OPEC+ Oil Grains Copper Aluminium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: All eyes on US CPI

ING Economics ING Economics 12.04.2023 10:38
The commodities complex held up well yesterday despite the IMF downgrading its global growth forecasts. For today, all attention will be on US CPI data, which is expected to show a further slowing Source: Shutterstock Energy: Middle distillate market under pressure Despite the IMF slightly lowering its global growth forecasts for the year and signalling that risks are skewed to the downside, the oil market still managed to close higher yesterday. ICE Brent settled 1.7% higher on the day. A weaker USD provided some support not just to oil but to the broader commodities complex. For today though attention will be on US CPI, where the market is expecting to see a further slowing. The year-on-year and month-on-month CPI are expected to come in at 5.1% and 0.2%, respectively. Clearly, any surprises to the upside could prove negative for risk assets with the market likely having to readjust its expectations on how much more tightening we will see from the Federal Reserve. The EIA released its latest Short Term Energy Outlook, where US crude oil production estimates were slightly increased. The EIA revised its 2023 US supply growth number from 560Mbbls/d last month to 660Mbbls/d this month, which would leave output averaging 12.54MMbbls/d. The EIA also expects slightly stronger growth over 2024 with supply set to grow by 210Mbbls/d, which would see output averaging 12.75MMbbls/d. Read next: FX Daily: IMF warns of a ‘perilous phase’| FXMAG.COM Overnight, the API released US inventory data. US crude oil inventories are reported to have increased by a marginal 400Mbbls, although the market was expecting a draw of closer to 1MMbbls. However, crude inventories held at Cushing are reported to have fallen by 1.4MMbbls. Stocks at Cushing have been declining for several weeks now, which has provided some support to the prompt WTI timespread with it having shifted from contango into a small backwardation. Meanwhile, we are seeing a further easing in strike action in France, which has plagued the French energy industry for the last month. TotalEnergies has said that it is restarting its 247Mbbls/d Normandy refinery, whilst the restart of the 219Mbbls/d Donges refinery is already in progress. This is after workers voted to end strike action and follows ExxonMobil workers also voting to end strike action last week. The increase in French refinery runs and broader concerns over global growth have weighed heavily on gasoil cracks with the prompt crack trading below US$20/bbl for the first time since February last year. In addition, nearby ICE gasoil timespreads have collapsed. Metals: Higher zinc treatment charges The latest reports suggest that zinc smelters have agreed to a 19% YoY increase in treatment charges for 2023 supply. Korea Zinc Co. and Teck Resources Ltd. have agreed on a treatment charge of US$274/t, up from US$230/t last year and the highest in three years. European smelter closures would have played a large role in these higher treatment charges, although lower energy prices should see some of these smelters restart production. The latest data from the LME shows that the share of Russian aluminium stocks in LME warehouses has climbed to 53% (220,575 tonnes) in March, compared to 46% and 41% reported in February and January, respectively. Agriculture: USDA cuts Argentine corn and soybean production The USDA left its estimates for US corn ending stocks for 2022/23 unchanged at 1.34b bushels in the April WASDE update. Although this was higher than expectations of around 1.32b bushels. The global corn balance saw 2022/23 ending stocks lowered from 296.5mt to 295.4mt, which was largely in line with market expectations. There were some fairly large revisions lower in output. Given the unfavourable weather in Argentina, the crop was downgraded from 40mt to 37mt, whilst EU output was also lowered from 54.2mt to 52.97mt. These reductions were partly offset by a 1.83mt revision higher in Russian output. Overall, the report was slightly bearish for corn prices. For soybeans, yesterday’s price action was surprising given that both US and global ending stocks came in above market expectations. The US domestic balance saw 2022/23 ending stocks left unchanged at 210m bushels, whilst expectations were for a number closer to 198m bushels. As for the global balance, 2022/23 ending stocks were increased slightly from 100mt to 100.3mt, higher than the 98.6mt expected.  Higher projected stocks come despite Argentine production being cut from 33mt to 27mt. This reduction was partly offset by a 1mt increase in Brazilian output, whilst consumption was also lowered by a little more than 5mt. Wheat prices came under pressure with US 2022/23 ending stocks increased from 568m bushels to 598m bushels, which is higher than the roughly 574m bushels the market was expecting. The revision higher was a result of largely weaker domestic demand. Changes to the global balance were more supportive. Global 2022/23 ending stocks were lowered from 267.2mt to 265.1mt, which is lower than the roughly 267mt the market was expecting. Projected ending stocks for this season are the lowest since 2015/16. The decline was driven by stronger feed demand from both China and the EU. Read this article on THINK TagsZinc WASDE USDA Oil Diesel Aluminium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: US CPI pushes oil higher

ING Economics ING Economics 13.04.2023 12:11
US CPI data came in below expectations which provided a boost to large parts of the commodities complex. NYMEX WTI hit year-to-date highs, while gold appears well supported above US$2,000/oz. For today, the market will be keeping an eye on OPEC’s latest outlook for the oil market Source: iStock Energy: WTI hits YTD highs Oil prices continued to surge yesterday with ICE Brent settling more than 2% higher on the day, leaving prices above US$87/bbl. Meanwhile, NYMEX WTI managed to trade to its highest levels so far this year. US CPI data was supportive with both month-on-month and year-on-year numbers coming in slightly below market expectations. Following the data, our US economist still expects one more hike of 25bp in May and then for the Federal Reserve to start cutting rates towards the end of this year. Comments from the US energy secretary would have provided further support to the market. Jennifer Granholm suggested that the US administration would look to start refilling the US Special Petroleum Reserve this year if it is advantageous to taxpayers. Given that we see higher prices throughout the year, this means it is unlikely that the refill will happen this year. Read next: Rates Spark: Compression pressure| FXMAG.COM Along with the strength in the flat price, timespreads for both Brent and WTI have strengthened. The recently announced OPEC+ cuts mean that the market will be even tighter than originally thought, which suggests the potential for further strength in timespreads later in the year. While we see a tighter market, there are clearly demand concerns and that is well reflected in weakening refinery margins, which have been largely driven by weakness in middle distillates. OPEC+ supply cuts have also meant a narrowing in the Brent/Dubai spread. This spread has been trending lower for much of the year on the back of hopes of a strong Asian demand recovery with the China reopening. OPEC+ cuts, which will predominantly come from Middle Eastern producers, only offer further support to Dubai relative to Brent. The market paid little attention to EIA weekly inventory data with all eyes instead on US CPI. US commercial crude oil inventories increased by 597Mbbls over the week, although crude stocks at Cushing fell by 409Mbbls. Meanwhile, gasoline and distillate fuel oil inventories declined by 330Mbbls and 606Mbbls, respectively.    The latest trade data from China this morning shows that crude oil imports in March surged to 12.37MMbbls/d, this is up from 10.66MMbbls/d in February and the largest volume seen since June 2020. Coal imports also grew by 41% MoM to 41.17mt - the strongest monthly import flows seen since January 2020. Strong import flows are likely a result of expectations of a recovery in domestic demand.   For today, OPEC will be releasing its latest monthly oil market report. The market will be eager to see what demand revisions, if any, the group make following the recently announced supply cuts from a number of members. Last month, OPEC forecast that global oil demand would grow by 2.32MMbbls/d in 2023. Metals: China's copper imports fall Gold continued to trade comfortably above $2,000/oz (rising for a third straight session) yesterday as US inflation eased slightly. Total known ETF holdings for gold rose by 106.7koz (biggest daily addition since last Thursday) to 93.4moz. China released its preliminary trade data for March this morning, which shows total monthly imports for unwrought copper fell 19% YoY to 408kt, while cumulative imports also declined 12.6% YoY to 1.29mt over the first three months of the year. Meanwhile, imports of copper concentrate fell 11.3% YoY and 7.5% MoM to 2.02mt last month. However, cumulative imports are still up around 5% YoY to 6.66mt. Iron ore imports were stronger, rising almost 15% YoY to 100.23mt in March, while year-to-date imports are up around 10% YoY to 294.34mt. On the exports side, China’s unwrought aluminium and aluminium products shipments fell 16.3% YoY to 497kt in March, while year-to-date exports declined 15.4% YoY. Meanwhile, exports of steel products jumped almost 53% YoY to 20.1mt over the first three months of the year. Read this article on THINK TagsWTI Refinery margin OPEC+ Oil Iron ore Copper China trade Brent Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: OPEC sees tighter market

ING Economics ING Economics 14.04.2023 10:25
Oil prices still came under pressure yesterday despite OPEC numbers suggesting a tighter market for the remainder of the year. Today, all attention will be on the IEA’s monthly oil market report Despite ICE Brent falling by 1.4% yesterday, oil markets are set to finish the week higher Energy – OPEC sees larger deficit in 2H23 ICE Brent fell by a little more than 1.4% yesterday, settling just above US$86/bbl. This weakness comes despite Chinese customs data showing strong crude oil imports in March. However, oil markets are still set to finish the week higher. OPEC’s latest monthly report yesterday suggested an even tighter market heading into the second half of the year. The group left its global oil demand growth forecast unchanged at 2.32MMbbls/d for 2023. OPEC expects global oil demand to average 101.89MMbbls/d this year. OPEC’s numbers suggest a call on OPEC production of close to 30MMbbls/d over the second half of 2023, this is higher than the 28.8MMbbls/d the group produced in March. The output will fall even further following the recently announced supply cuts from a handful of members. Taking into account OPEC estimates and recently announced supply cuts suggests that OPEC expects a deficit of around 2MMbbls/d over the second half of the year. The International Energy Agency (IEA) will be releasing its latest monthly oil market report later today and the market will be keen to see what revisions, if any, the agency makes to its demand forecasts for the remainder of the year. Last month the IEA expected global oil demand to grow by 2MMbbls/d in 2023 to a record 102MMbbls/d. Metals – Iron ore declines on planned steel output curbs Iron ore fell to a four-month low yesterday, hitting an intra-day low of US$114.60/t on the back of China’s plans for steel output curbs for 2023. The latest reports suggest that Chinese authorities are preparing to announce a steel output cap for the year by the end of this month, which would ensure that domestic steel volumes don’t exceed 2022 levels of 1.01b tonnes. Read next: Rates Spark: Divergent paths| FXMAG.COM Meanwhile, the latest data from the China Iron and Steel Association (CISA) show that steel inventories at major Chinese steel mills rose to 18.3mt in early April, up 6.2% compared to late March. However, crude steel production at major mills increased by 2.7% from the above-mentioned period to 2.32mt/d (the highest level in 11 months) in early April.  Agriculture – Coffee jumps on supply woes Arabica coffee futures jumped more than 3% to close at USc194/lb (the highest in six months) yesterday on the back of supply concerns and Brazilian real (BRL) strength. In its latest monthly report, the Colombian coffee growers federation reported that domestic coffee production declined 13% YoY to 799k of 60kg bags in March. The group further added that the nation’s coffee shipments fell 19% YoY to 906k of 60kg bags, following a 6% YoY drop in February. It has been reported that excessive rain is having an impact on crops and shipments. Meanwhile, the strength in the BRL will also provide further upside to coffee prices, lowering the incentive to export from this key supplier. The BRL is trading at its strongest levels since June last year.   China’s Agriculture Ministry launched a three-year campaign to further cut the use of soybeans in animal feed, primarily to reduce its reliance on overseas imports. The government plans to lower the amount of soymeal used in feed to below 13% by 2025, from 14.5% in 2022. China imports around 80% of soybeans from overseas, most of which comes from Brazil and the US. Brazil’s agriculture agency, CONAB, has raised its soybean production estimates for 2022/23 as favourable weather conditions lead to improved yields towards the end of the harvest. In its recent projections, CONAB estimates domestic soybean production to increase from a previous estimate of 151.4mt to 153.6mt. This compares to 125.6mt produced in 2021/22. Corn production estimates were marginally increased from 124.7mt to 124.9mt for 2022/23. Read this article on THINK TagsSteel Soybeans OPEC Oil Iron ore IEA Coffee BRL Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Synthetic fuels could be the answer to shipping's net-zero goals, but don’t count on them yet

The Commodities Feed: Black Sea grain uncertainty

ING Economics ING Economics 18.04.2023 18:06
Oil prices came under pressure yesterday on the back of a stronger USD. For today, all attention will be on Chinese 1Q23 GDP and March activity data Energy - progress on Northern Iraqi oil exports Oil prices started the trading week on a weak footing. ICE Brent settled 1.8% lower yesterday with a stronger USD weighing on the market. In addition, there appears to be more progress in negotiations between the Iraqi and Kurdish governments, according to Reuters, which would see a resumption of oil flows from Northern Iraq via the Ceyhan export terminal in Turkey. Oil flows of around 450Mbbls/d were halted back in late March after the International Chamber of Commerce ruled in favour of the Iraqi government, which claimed that these oil exports via Turkey were unauthorised.  The EIA released its latest Drilling Productivity Report yesterday, in which it forecast that US shale oil output will grow by 49Mbbls/d MoM to 9.33MMbbls/d in May. In addition, the number of drilled but uncompleted wells (DUCs) in the US fell by 10 over March to 4,676, the lowest DUC inventory seen since March 2014. Drilling activity is higher than levels seen over 2021 and 2022, but still remains below pre-Covid levels and is clearly not keeping up with the pace of completion of wells. US natural gas prices saw a lot of strength yesterday with Henry Hub rallying more than 7.6% on the day. Forecasts for colder-than-usual weather across parts of the US later in the week have boosted sentiment in the expectation of higher heating demand. In addition, we have seen record volumes of gas sent to LNG export terminals in recent days as they return to normal following the extended Freeport LNG outage. Metals- Myanmar mining ban plan Tin prices settled more than 10% higher yesterday, and traded to their highest level since 21 February on news of a mining ban in Myanmar, a major producer of the soldering metal. Myanmar’s Wa State, the country’s largest ethnic armed group, which controls the tin-mining area, will suspend mining resources exploration from August, according to Bloomberg. Myanmar has the world’s third largest reserves of tin, behind China and Indonesia, according to the US Geological Survey. China is particularly dependent on Myanmar tin ore, which accounted for 77% of China’s tin ore imports in 2022, according to Chinese customs data. Prices on the Shanghai Futures Exchange closed 10.5% higher at their daily limit. Read next: Asia Morning Bites - 18.04.2023| FXMAG.COM China’s alumina supply will outpace demand this year, rising 3.1% to 82.2m tonnes this year, while demand will grow by 2.2%, according to estimates from Antaike. Chinese alumina capacity could expand by 8.4m tonnes over 2023 and 2024 from 99.55m tonnes as of 2022, according to the group. Norsk Hydro warned of delivery delays as trade union members at its Karmoy and Ardal facilities go on strike from Monday. The strike action will gradually affect operations at the facilities and shipping activities will be strictly limited for both sites, the company said in a press release. Agriculture – Black Sea Grain Initiative uncertainty Ukraine’s Infrastructure Ministry said that Russia stopped inspecting grain vessels exported via Ukraine under the Black Sea Grain Initiative. The Ministry further added that the “grain initiative is under threat of shutdown”, which has once again ignited fears over the smooth movement of grains from three key ports. Nonetheless, the latest data from the Joint Coordination Centre (JCC) showed that the volume of crops under the grain deal leaving Ukrainian ports rose 7% WoW to about 702.3kt as of 16th April, compared with 656kt in the previous week. The USDA’s latest weekly crop progress report for the US shows that the winter wheat crop condition remains poor due to extended drought conditions in major producing regions. The agency rated around 27% of the winter wheat crop in good-to-excellent condition compared to around 30% at the same stage last year. Meanwhile, corn and soybean plantings appear to be progressing well. The USDA reported that domestic corn plantings stood at 8% for the week ending 16th April, higher than the 4% planted at this stage last season and also above the 5-year average of 5%. US soybean plantings were reported to be 4% complete, ahead of the 1% seen at this stage last year. Read this article on THINK TagsUSDA USD strength Tin Oil Natural gas Grains Black Sea Aluminium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Crude oil to close the the post-OPEC+ gap? Gold "remains choppy"

The Commodities Feed: Demand worries linger

ING Economics ING Economics 20.04.2023 11:31
The commodities complex came under pressure yesterday with a stronger USD weighing on markets. Demand also remains a key concern for the oil market, while for grain markets, a resumption of Black Sea shipments has helped ease some supply worries Energy - demand worries grow The oil market came under further pressure yesterday with ICE Brent falling to its lowest level this month. The 100-day and 50-day moving averages should provide some immediate support to the market. However, if these support levels fail, it could trigger some further selling. A stronger dollar weighed on large parts of the commodities complex yesterday, whilst specifically for oil, demand remains a key concern. The weakness seen in refinery margins is not a great demand signal and this weakness could start to see refiners trimming run rates. EIA data did not help ease these demand concerns. Implied US gasoline demand fell by 417Mbbls/d WoW to a little over 8.5MMbbls/d, which is down from around 8.9MMbbls/d at the same stage in 2022. Implied demand for distillate fuel oil was largely flat WoW. Weaker gasoline demand helped lead to the 1.3MMbbls build seen in US gasoline inventories over the week. Inventory changes for crude were more supportive with US commercial crude oil inventories falling by 4.58MMbbls. In addition, crude stocks at Cushing declined by 1.09MMbbls, leaving stocks at the WTI delivery hub at 32.75MMbbls- the lowest level since January. However, clearly, the market was more interested in the demand data. Read next: Asia Morning Bites - 20.04.2023| FXMAG.COM Oil flows from Northern Iraq via Ceyhan in Turkey remain halted, which is keeping around 450Mbbls/d of supply from the market. The Iraqi prime minister had said that flows could resume this week, after coming to an agreement with the Kurdish regional government. However, Iraq still needs to reach a settlement with Turkey before these flows can restart. Oil supplies via Ceyhan were halted in late March after the International Chamber of Commerce ruled in favour of Iraq, which claimed that oil from the Kurdish region was being exported via Ceyhan without the Iraqi government’s approval. Metals – Global steel demand to recover The World Steel Association expects global steel demand to rise by 2.3% YoY to 1,822.3mt in 2023 and then a further increase in 2024 of 1.7% YoY to 1,854mt amid recovering manufacturing activity. Looking at China, domestic steel demand declined by 3.5% YoY in 2022 and it is now expected to grow by 2% YoY in 2023 following supportive government measures, especially for the real estate sector. Meanwhile, Chinese steel demand growth is expected to remain flat in 2024. The group also expects steel demand in developed economies to recover after declining sharply last year due to monetary tightening and high energy costs. Demand from these economies is forecast to grow by 1.3% YoY in 2023 and 3.2% YoY in 2024. As for developing economies (ex-China), steel demand is expected to rise this year by 3.6% and then by a further 3.9% in 2024. In mine supply, Antofagasta reported that its copper mining output rose over 5% YoY to 145.9kt in 1Q23. Although, production fell by 25% on a QoQ basis mainly due to temporary output losses at the Los Pelambres mine and scheduled maintenance at the Centinela mine. The miner expects its copper production to remain healthy for the remainder of the year and maintained its full-year production guidance of between 670kt-710kt for 2023. In ferrous metals, iron ore prices came under pressure yesterday as China’s National Development and Reform Commission (NDRC) said it would protect the market’s normal order and crack down on unreasonable price gains in the iron ore market. The group also pledged to continue strengthening the exploration of domestic resources, accelerate project building, and improve used-steel recycling. Brazilian miner, Vale SA released its latest quarterly update, which showed that its iron ore production fell 17% QoQ to 66.8mt in 1Q23. It is fairly normal to see production impacted over the first quarter of the year, given it is the rainy season in Brazil. However, production YoY was still up 5.8%. Vale maintained its annual production guidance of 310mt-320mt for the year.  Agriculture – Black Sea grain shipments resume Inspections of grain vessels shipped from Ukrainian ports under the Black Sea Grain Initiative resumed yesterday after being blocked for two days. This move would have helped ease some supply concerns in the global market, but there are still risks around these flows. The Brazilian Corn Ethanol Union (UNEM) estimates that the sector will produce 6b litres of corn-based ethanol in the 2023/24 season. This would account for about 20% of total domestic ethanol production. The union further added that the future growth in Brazil’s biofuel supply will come from corn, in a country where sugarcane has dominated the market. If this is a trend that continues, it clearly would be supportive of corn prices, whilst also potentially leaving more sugarcane for sugar production. Read this article on THINK TagsSugar Steel Russia-Ukraine Oil Iron ore Iraq Grains EIA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: Brent declines

ING Economics ING Economics 24.04.2023 10:57
Oil had its first weekly decline since mid-March as demand worries linger Source: Shutterstock Energy - Strong Indian refining activity Oil prices settled lower last week for the first time since mid-March. ICE Brent fell by almost 5.4% last week due to demand worries. Refinery margins remain under pressure, largely a result of weakness in middle distillates. However, gasoline cracks have also started to see some weakness. For gasoil, time spreads have weakened considerably over the last month with the prompt spread not too far from slipping into contango. It is currently trading in a backwardation of a little over US$2/t. Surprisingly, despite the weakness in gasoil, the speculative net long in ICE gasoil increased by 1,020 lots to 18,317 lots. The net long is still, however, some distance from the 80k lots seen back in January. ICE Brent also saw speculators increase their net longs, despite settling lower. The managed money net long increased by  7,946 lots to 241,987 lots. This move was predominantly driven by fresh longs, suggesting that some market participants feel that oil is underpriced at the moment. The latest government data from India shows that domestic refiners processed a record 23mt (5.44MMbbls/d) of crude oil in March, up a little over 3% YoY. This leaves the total amount of crude processed over the 2022/23 fiscal year at 255.2mt (5.13MMbbls/d), up 5.6% YoY. As a result, it is not surprising that stronger crude oil imports were also observed. March crude imports came in at 20.5mt (4.85MMbbls/d), up 7.9% YoY, whilst total imports over the 2022/23 fiscal year came in at 232.4mt (4.67MMbbls/d), up 9.4% YoY Metals – North Chile's protests hit Codelco mines There are reports that copper operations at Codelco’s mines were disrupted due to ongoing anti-crime protests in northern Chile. Codelco said that access to the Chuquicamata, Radomiro Tomic, Gabriela Mistral and Ministro Hales mines has been blocked since early Friday and operations were running at minimum levels. Recent data from the Shanghai Futures Exchange (ShFE) shows that weekly exchange inventories for zinc fell 8% WoW to 79,941 tonnes- the lowest since the last week of January and the sixth consecutive week of declines. In other metals, lead inventories declined 32% WoW to 25,285 tonnes, while nickel stocks fell 34% WoW, taking total stocks to 1,496 tonnes - the lowest level since July. Read next: Central banks: Our latest calls ahead of a dramatic month| FXMAG.COM In ferrous metals, iron ore fell to its lowest level since December as weaker-than-expected demand in China and ample supplies weighed on the raw material. Mysteel reported that some 52 of 126 blast furnaces in Tangshan province (a major steel-producing hub) in China have gone into maintenance, which will reduce capacity by around 765.5kt. Agriculture – Argentine soybean output The Buenos Aires Grain Exchange slashed its 2022/23 soybean production forecast to 22.5mt from 25mt due to lower yield estimates. The group left corn production estimates unchanged at 36mt for the current season. The latest data from Ukraine’s Agriculture Ministry shows that total grain exports from Ukraine dropped 11% YoY to 40.6mt so far in the 2022/23 season. The fall in exports was largely anticipated following the headwinds faced. Ukraine’s wheat exports fell 25% YoY to 13.9mt, while corn exports stood at 23.9mt (+15% YoY). Following the large price movements seen in sugar and coffee, it was surprising that the latest positioning data from the CFTC shows only a marginal increase in the speculative net long in sugar. Speculators increased their net long in No.11 sugar by 5,805 lots to 226,058 lots. Arabica coffee saw a more meaningful increase with speculators buying 11,785 lots to leave them with a net long of 33,557 lots. Read this article on THINK TagsSpeculators Soybeans Oil Iron ore Copper Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: Oil sell-off continues

ING Economics ING Economics 27.04.2023 12:53
The sell-off in the oil market continued yesterday despite a constructive US inventory report. Sentiment remains clearly negative and it's hard to see a turnaround until we see some signs of strength in the refined products market Source: Flickr Energy: Brent back below pre-OPEC+ levels The oil market saw yet another day of weakness with ICE Brent selling off a little more than 3.8% yesterday, pushing it well below US$80/bbl and back below levels it was trading at prior to the surprise OPEC+ supply cuts earlier this month. There was little in the way of fresh developments to justify the sell-off, but clearly sentiment in the market remains negative as a result of the macro outlook. The prompt ICE Brent timepsread has also fallen back into a small contango, suggesting a more comfortable prompt market in terms of supply. The price action we have seen in the last two weeks would suggest that OPEC+ made the right decision to announce further supply cuts. However, our balance sees significant tightening over the second half of the year, which should still mean that the market moves higher. For now though, it’s a bit tricky to figure out where the floor for the market is. The potential refill of the US Special Petroleum Reserve was meant to provide some support to prices, with the US administration originally saying it would look to refill the SPR if WTI traded down to the US$67-72/bbl range. However, the market traded down to those levels in March and we saw no action (due to maintenance and mandated SPR releases). Instead, the start of any potential refill may only happen in the second half of the year, if prices are attractive enough. This once again leaves OPEC+ as the most likely candidate to provide support to the market, and noise of further intervention is only likely to grow if we were to see Brent trading down towards US$70/bbl. Trading significantly lower than this would see oil prices below the fiscal breakeven for a number of Middle Eastern producers. The market ignored what was largely a constructive inventory report from the EIA. The EIA reported that US commercial crude oil inventories fell by 5.05MMbbls over the last week, which was more than the 1-1.5MMbbls draw the market was expecting. In addition, gasoline and distillate stocks fell by 2.41MMbbls and 577Mbbls, respectively. Implied gasoline demand also saw a strong recovery over the week, increasing by 992Mbbls/d to 9.51MMbbls/d. Metals: MMG copper output drops 13% YoY MMG reported that its copper mining output fell 13% year-on-year to 68,954 tonnes in the first quarter mainly due to lower milled ore grades at its Las Bambas mine in Peru. However, the miner maintained its annual copper production guidance at 305kt-353kt for the year. Amongst other metals, the company reported that zinc production declined 38% YoY to 30,650 tonnes in the first quarter due to the suspension of operations at Dugald River in Australia during mid-February. However, operations have since resumed. MMG lowered its full-year zinc production guidance to 190kt-215kt for 2023 following the 34-day suspension at the mine. Meanwhile, First Quantum Minerals reported a 33% decline quarter-on-quarter in its copper production to 138.7kt in 1Q23 due to a 15-day temporary production suspension at Cobre Panama and the rainy season in Zambia. The company left its annual copper production guidance unchanged at 770kt-840kt for the year. Agriculture: Sugar prices surge on supply woes The Indian Sugar Mills Association (ISMA) revised down its Indian sugar production estimate for the 2022/23 season by 3.5% to 32.8mt. This almost guarantees that we will not see the government issue any further export quotas for the season. Prompt tightness in the sugar market and growing concerns over El Nino risks for next season have seen the No.11 Jul-23 contract rally by more than 8% over the last week. The No.11 May-23 contract also expires this Friday, and given the tightness in the prompt market we would not expect a large delivery. Although open interest in the contract still stands at 36,804 lots (1.87mt) as of Tuesday. Read next: Asia Morning Bites - 27.04.2023| FXMAG.COM The latest report from Statistics Canada shows that Canadian farmers are expecting to plant the largest wheat crop in more than two decades this season amid strong demand for wheat. Statistics Canada forecast all-wheat plantings at 27m acres, up 6.2% from last year. Corn and soybean area were also revised up by 2.8% and 4.5%, respectively. Improved weather conditions and growing demand prompted domestic producers to increase grain plantings. Read this article on THINK TagsZinc Sugar OPEC+ Oil Grains EIA Copper Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
fxpro-1-crude

The Commodities Feed: Oil looking for a floor

ING Economics ING Economics 05.05.2023 10:35
The macro picture continues to dictate oil price action. However, fundamentals later this year remain constructive Source: Shutterstock Energy - Oil fundamentals still supportive The oil market is set for its third consecutive week of declines over growing demand concerns. At US$72.50/bbl, ICE Brent is down almost 9% over the course of the last week. Sentiment clearly remains negative, which suggests that there could be some further downside in the near term, although, we would expect the market to find good support near the March lows of around US$70/bbl. While sentiment is negative at the moment, the market is in oversold territory and our balance sheet still shows that the market will be in deficit over 2H23, which should drive prices higher. OPEC+ has announced that their next meeting in Vienna on 3-4 June will be held in person. The last time the group held an in-person meeting was back in October last year when the group announced that they would reduce production targets by 2MMbbls/d. Clearly, if the current downward trend continues in prices, the group would likely be forced to make further supply cuts. Saudi Arabia lowered its official selling prices (OSPs) for all grades of its crude oil into Asia for June. The OSP for Arab Light into Asia was lowered by US$0.25/bbl MoM to US$2.55/bbl over the benchmark. Meanwhile, all grades into Europe were increased for the month, while most grades into the US were left unchanged with the exception of Arab Light, which was cut by US$0.50/bbl. Lower OSPs will be helpful for Asian refiners, who have been dealing with weaker margins recently. Read next: Asia Morning Bites - 05.05.2023| FXMAG.COM The latest data from Insights Global shows that refined product inventories in the ARA region increased by 318kt over the week to 6.26mt. The increase was driven by fuel oil and gasoil. Stocks grew 171kt and 109kt respectively. At 2.35mt, gasoil inventories remain above the 5-year average. In Singapore, refined product stocks fell by 2.27MMbbls over the week to 43.96MMbbls. This was largely a result of a fall in residual fuel oil inventories. Agriculture – Black Sea grain deal uncertainty Uncertainty in the wheat market remains due to the Black Sea grain deal. The deal is set to expire on 18 May and discussions are expected to take place today with the hope that the deal is extended sometime next week. Recent Russian accusations of a Ukrainian drone attack on the Kremlin raise concern over Russia's willingness to extend the deal. The latest data from the International Coffee Organization shows that global coffee exports stood at 12.02m bags in March, down 9.3% YoY. This includes Arabica exports of 6.8m bags (down 14% YoY) and Robusta exports of 5.3m bags (down 2.2% YoY). Cumulative exports between October 2022 and March 2023 stood at 62.3m bags, down 6.4% YoY. Read this article on THINK TagsSaudi Arabia Refined product OPEC+ Oil Grains Coffee Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Commodities Feed: Further oil supply disruptions

The Commodities Feed: Further oil supply disruptions

ING Economics ING Economics 09.05.2023 18:07
The oil market saw a second day of gains yesterday with Friday’s strong US jobs report providing support. In addition, the oil market is seeing further supply disruptions Energy – Canadian supply disruptions The oil market continued its recovery yesterday with ICE Brent settling almost 2.3% higher on the day. Friday’s stronger-than-expected US jobs report provided some further support to the oil market. In addition, supply issues remain. Firstly, the market is still awaiting the resumption of Northern Iraqi oil flows via Ceyhan in Turkey, which is keeping in the region of 450Mbbls/d from the market. And secondly, wildfires in parts of Alberta, Canada has led to the shut-in of oil and gas infrastructure. The fires are affecting the key gas production region. According to Bloomberg, at least 234Mbbls/d of oil and gas production has been shut in as a result of the fires. This has seen differentials for both Edmonton mixed sweet and Syncrude sweet crude strengthen. For West Canada Select, there has been little change in differentials with fires not affecting the oil sands production areas. The latest trade data from China this morning shows that crude oil imports in April averaged 10.36MMbbls/d, this is down from 12.37MMbbls/d in the previous month and also lower than the 10.52MMbbls/d imported in April last year. Weaker imports are not too much of a surprise given that refiners had reduced operating rates due to maintenance. However, cumulative imports for the year are still up 4.6% year-on-year to average 10.92MMbbls/d. As for refined product exports, these totalled 3.75mt in April, down from 5.45mt in March and 1.8% lower YoY. Cumulative product exports are still up 44.3% YoY to total 21.9mt. Later today, the EIA will release its short-term energy outlook, which will include its latest forecasts for US crude oil production. In last month’s report, output for 2023 was forecast to grow 657Mbbls/d YoY to average a record 12.54MMbbls/d, whilst for 2024 production was forecast to grow by a more modest 211Mbbls/d YoY to 12.75MMbbls/d. Metals – China continues to boost gold reserves China continued to increase its gold reserves for a sixth consecutive month in April, according to data from China's State Administration of Foreign Exchange (SAFE). The People’s Bank of China raised its gold reserves by about 8.09t to a total of 2,076t in April and this is after adding more than 120t over the previous five months. This is a trend we continue to see globally with Word Gold Council data showing that total gold reserves rose by 228t (+176% YoY) in the first quarter of the year. These purchases were driven mainly by Asia, whilst Turkey added 30t over the quarter. Recent data from the China Iron and Steel Association (CISA) show that steel inventories at major Chinese steel mills fell to 18.1mt in late April, down 2.3% compared to mid-April. Similarly, crude steel production at major mills decreased by 3.6% from the above-mentioned period to 2.21mt/d in late April. Meanwhile, steel mills in the Fengnan district of Tangshan City have been officially asked by the local authorities to curb crude steel output by working on production plans throughout the year. This would be the first batch of steel mills in China to observe another administrative year-on-year reduction in crude steel output after repeated cuts in 2021 and 2022. Agriculture – Black Sea Grain deal negotiations Wheat prices remain fairly volatile with still plenty of uncertainty over the Black Sea grain initiative. Ukraine’s Infrastructure Ministry stated that Russia once again blocked the inspection of vessels shipped from Ukrainian ports. The deal is set to expire on 18 May and whilst there are ongoing negotiations to extend once again, Russia has threatened not to renew the deal unless its demands are met. The USDA’s weekly US crop progress report for the week ending 7 May shows that corn and soybean plantings remained strong, whilst crop conditions for winter wheat continue to improve. The agency reported that domestic corn plantings stood at 49% complete, up from 26% planted last week and 21% planted a year ago. It’s also above the five-year average of 42%. US soybean plantings are 35% complete as of 7 May, compared to 11% a year ago and the five-year average of 21%. Meanwhile, the agency rated around 29% of the winter wheat crop in good-to-excellent condition, up from 28% a week ago, and in line with levels seen last year. Read next: Rates Spark: Crunch time| FXMAG.COM The USDA’s weekly export inspection data for the week ending 4 May shows that US grain shipments remained weak over the last week. US weekly inspections of corn exports stood at 963.4kt, down from 1,518.6kt in the previous week and 1477.2kt reported a year ago. For soybean, export inspections stood at 394.8kt, lower than the 408kt seen last week, as well as the 506.9kt seen for the same period last year. Wheat export inspections also came in lower at 209.1kt, down from 358.3kt a week ago and 262.9kt a year ago. Read this article on THINK TagsSteel Oil Iron ore Grains Gold EIA China trade Canada Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Are crude oil prices rebounding on the back of a possible debt ceiling deal?

The Commodities Feed: SPR refill

ING Economics ING Economics 10.05.2023 14:27
The oil market eked out a small gain in what was a fairly choppy session yesterday. Further noise around the refill of the SPR provided support. For today, markets will be keeping a close eye on US CPI numbers Source: Shutterstock Energy - Further gains for oil The oil market has managed four consecutive days of gains, which has taken ICE Brent back above US$77/bbl, after falling as low as US$72.33/bbl last Wednesday. Weaker Chinese trade data weighed on the market earlier in yesterday’s trading session, including weaker oil imports. However, further comments from the US Department of Energy relating to the refilling of the strategic petroleum reserves (SPR) provided some support to the market. It appears as though the US administration is still keen to refill the SPR later this year, once maintenance at storage sites is complete. Obviously, this will also be price dependent. Previously, the administration said that they would look to start replenishing the SPR if WTI traded in the region of US$67-72/bbl. Supply disruptions also continue to provide support to the market. As mentioned yesterday, wildfires in Alberta, Canada, have seen at least 234Mbbls/d of oil and gas production shut in. These fires have occurred in the key gas-production region of Alberta, rather than in the oil-sands producing region. The situation is improving, with the number of active wildfires reported to have declined from more than 100 earlier this week to around 88 more recently. Differentials for both Edmonton mixed sweet and Syncrude sweet crude have stopped strengthening. API inventory numbers released overnight show that US crude oil inventories increased by 3.62MMbbls over the last week, quite different to the roughly 2.5MMbbls drawdown the market was expecting. In addition, gasoline inventories increased by 399Mbbls, whilst distillate stocks declined by 3.95MMbbls. Overall, the numbers were neutral to slightly bearish, given the larger-than-expected build in crude. Read next: Asia Morning Bites - 10.05.2023| FXMAG.COM The EIA released its latest Short-Term Energy Outlook yesterday and US crude oil production forecasts for both 2023 and 2024 were revised slightly lower. The EIA expects output over 2023 to grow by 644Mbbls/d YoY to 12.53MMbbls/d, down from last month’s forecast of 12.54MMbbls/d. Output for 2024 is expected to grow by only 159Mbbls/d YoY to 12.69MMbbls/d, down from a previous forecast of 12.75MMbbls/d. The more modest growth seen in US output has given OPEC+ the confidence to cut output without the worry of losing a significant amount of market share.    Metals – Chinese unwrought copper imports fall China released preliminary trade data for metals yesterday which showed total monthly imports for unwrought copper falling 12.5% YoY to 407.3kt (lowest since October) in April amid subdued demand due to persistent weakness in the property market. Higher domestic production of the metal also impacted the overall demand for imported copper. Cumulatively, unwrought copper imports have fallen 12.6% YoY to 1.7mt in the first four months of the year. In contrast, imports of copper concentrate rose 11.8% YoY to 2.1mt last month, while year-to-date imports rose 6.7% YoY to 8.76mt. Iron ore imports fell 9.8% MoM to 90.4mt (lowest since June) last month due to weaker-than-expected demand during the construction season in China. Although, imports were up 5% YoY, whilst cumulative imports also increased 8.6% YoY to 385mt. On the exports side, China’s unwrought aluminium and aluminium products shipments fell 22.6% YoY to 462kt last month, while cumulative exports declined 17.3% YoY to 1.84mt in the first four months of the year. Exports of steel products jumped 55% YoY to 28mt between January and April. Agriculture – Black Sea grain inspections resume UN data shows that grain exports from Ukraine fell 29% MoM to just under 2.8mt in April and shipments are expected to fall again this month following repeated headwinds with the Black Sea export deal. Vessel inspections have dropped to an average of 2.9 per day in May from an average of 4 per day in April and 5.6 per day in March. This is also well below the peak of 10.6 per day seen back in October. Inspections resumed yesterday after being blocked for two days. The Black Sea Grain Initiative is set to expire on 18 May and talks continue this week to extend the deal once again. The latest trade numbers from China show that soybean imports rose 6% MoM to 7.26mt in April. Although YoY imports are down 10% YoY due to more stringent customs procedures delaying the delivery of soybean cargoes. Cumulatively, soybean imports rose 6.8% YoY to 30.3mt over the first four months of the year. Read this article on THINK TagsSPR Oil Grains EIA Copper China trade API Aluminium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: Renewed pressure

ING Economics ING Economics 12.05.2023 11:32
The commodities complex has come under further pressure. China demand concerns, lingering banking sector worries, and uncertainty over the US debt ceiling have all weighed on the complex There appears to be some progress on the resumption of Kurdish oil flows via Ceyhan in Turkey Energy – possible restart in Kurdish oil flows After a strong start to the week, the oil market has come under renewed pressure more recently with Brent settling almost 1.9% lower yesterday. Most of the commodities complex came under pressure due to lingering banking concerns, worries over the US debt ceiling and questions growing over how strong a Chinese recovery we are seeing. Chinese consumer inflation data for April came in at just 0.1% year-on-year, which was below market expectations. Similarly, the producer price index also came in below expectations. During testimony, the US energy secretary said that the Department of Energy (DoE) could start to refill the strategic petroleum reserves (SPR) once mandated releases come to an end in June. Originally the US administration had said that it would look to start refilling the SPR if WTI traded down to the US$67-72/bbl area. The market has traded down to these levels this year, but we have seen no signs of refilling. The DoE had said previously it would be difficult to refill the SPR until later in the year due to mandated releases and maintenance at storage sites. On the supply side, there appears to be some progress on the resumption of Kurdish oil flows via Ceyhan in Turkey. Iraq’s oil minister has said that exports via Ceyhan would resume on 13 May with Iraq’s state-run oil company informing Turkey’s Botas of the resumption. Although, there does not appear to be confirmation from Turkey yet. A return of this oil would bring in the region of 450Mbbls/d back to the market. Markets will need to keep an eye on wildfires in Canada. Up until now, it has been the gas-producing regions within Alberta that have been affected by the fires. However, there are concerns that rising temperatures over the weekend could increase the risk of wildfires in Northern Alberta, which could affect output in the oil sands. OPEC’s monthly market report yesterday had very little in the way of changes. The group left its non-OPEC supply growth estimate for 2023 unchanged at 1.43MMbbls/d, whilst global demand growth was also left virtually unchanged at 2.33MMbbls/d for 2023. The group also reported that OPEC production fell by 191Mbbls/d MoM to 28.6MMbbls/d in April. This decline was largely driven by Iraq and Nigeria. Metals – Copper gives up 2023 gains Copper slumped to its lowest level since November after China’s inflation data added to concerns over the strength of the country’s economic recovery. Both CPI and PPI numbers for April came in below market expectations, with CPI close to zero and PPI in negative territory. Copper climbed to a high of $9,550.50/t in January amid bets of a revival in Chinese demand following the end of Covid-19 lockdowns, but it has now given back all of the 2023 gains. In aluminium, LME on-warrant stockpiles fell by 132,675 tonnes, the most since 2019, according to data from the exchange. Most of the outflows were reported from warehouses in Port Klang, Malaysia. Meanwhile, cancelled warrants for aluminium rose by 132,500 tonnes following two consecutive days of declines, to 197,375 tonnes, the highest since 19 January, and signalling potential further outflows. On the supply side, the Shanghai Metals Market (SMM) reported that aluminium capacity in China is expected to rise significantly in the second half of the year. Operating rates of aluminium smelters in major producing regions of Shandong, Xinjiang and Inner Mongolia remained high in March. The combined capacity in the three provinces totals around 20.65mt, which is nearly half of the country’s total capacity. The group believes that roughly 930kt of aluminium capacity has been resumed as of 20 April while 212kt was newly commissioned, which almost equates to the 1.2mt of capacity reductions seen earlier. SMM estimates that another 2.63mt of aluminium capacity will be resumed while 1.57mt of new capacity will be commissioned later this year. In steel, Mysteel reported that Baoshan Iron & Steel Co., the top steel producer in China, trimmed its factory-gate prices of steel products by CNY200/t in June due to subdued demand. The producer said that the orders for June have weakened when compared to the current month, while slow overseas consumption has resulted in lower exports. Agriculture – UNICA reports lower cane crush The latest fortnightly report from UNICA shows that sugar cane crushing in Centre-South Brazil stood at 21mt over the second half of April, down 12.5% from a year ago as excessive rains disrupted crushing activity. The group reported that mills lost about 10 days of crushing in April due to the above-average rainfall. The market was expecting a number closer to 26mt. However, the cumulative cane crush is still up 18.8% YoY this season to stand at 34.8mt. Read next: Rates Spark: Balancing data and risk factors| FXMAG.COM Sugar production stood at 989kt over the fortnight, with around 43.8% of cane allocated to sugar production. Cumulative sugar production rose by 43.7% YoY to 1.5mt. UNICA said that around 197 mills had started processing cane for the season by the end of April, higher than the 184 mills that had started by the same stage last season. Read this article on THINK Tags Sugar SPR OPEC Oil Copper Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Commodities Feed: Debt ceiling talks & a more hawkish Fed

Watch prices of cereal grains, coffee and palm oil. According to long-term forecasts from meteorologists, the dry season this year will last longer than usual

Conotoxia Comments Conotoxia Comments 12.05.2023 14:42
In the wake of climate change, we are increasingly faced with hurricanes, droughts, floods and other extreme weather events that can affect the economy. Droughts lead to reduced agricultural yields, which can result in higher food and agricultural commodity prices on global markets. A reduction in the amount of available food can in turn lead to food shortages, especially in Asian developing countries, i.e. India, among others. For this economy, reduced revenues from food production could also be crucial, given that as much as 16.8% of the workforce there works in agriculture, against an average of 5.8% for the region as a whole (World Bank data). How might this situation affect financial markets? Pessimistic forecasts from meteorologists According to long-term forecasts from meteorologists, the dry season this year will last longer than usual and be accompanied by even less rain than usual. Temperatures routinely exceed 40 degrees Celsius in Thailand, Laos and Cambodia. As a result, there are local shortages of water and electricity availability. Climate historian Maximiliano Herrera has called the current climatic conditions "the worst heatwave in Asian history". According to Herrera, the season of crop and forest spontaneous combustion usually lasts about two months and ends with the arrival of the rainy season. Cambodia's weather forecasts, however, call for an extension of the heatwave until mid-May, with less rainfall than in 2022. These forecasts can be applied equally to southern Vietnam, Laos, Thailand and Myanmar and, if correct, a potential drought could have a devastating impact on the poorer economies of the region. Source: https://en.sat24.com/en/forecastimages/azie/forecasttemp Agricultural products at risk of crop failure Agricultural products, including cereal grains, coffee and palm oil, among others, are exposed to significant impacts from drought. Wheat prices appear particularly vulnerable to climate change, with China and India ranking 1st and 3rd globally in wheat production in 2020, accounting for 17 and 12.5% of global production respectively. A crop failure could lead to shortages and drastically drive up wheat prices. Nevertheless, there is currently an oversupply in the markets for products such as maize, sunflower and wheat. This is due to the unlocking of more than 23 million tonnes of grain and food products from Ukraine. The war in that country is bringing agricultural markets down. Source: https://worldpopulationreview.com/country-rankings/wheat-production-by-country Source: Tradingview Possible negative consequences for developing countries The poorer countries of the region, which at the same time have a high proportion of people working in agriculture, appear to be particularly vulnerable to possible crop failure. Such countries in Southeast Asia include.  Read next: Conotoxia's analyst talks mistakes to avoid basing on major investors| FXMAG.COM Myanmar (23%), Cambodia (22%) or India (17%). A crop failure in these countries could even lead to famines and a significant slowdown due to the need for support and subsidy programmes for the citizens of these countries. Źródło: https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?type=shaded&view=map Grzegorz Dróżdż, CAI, Market Analyst of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.18% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Source: Record heat in Southeast Asia. What impact could they have on markets? (conotoxia.com)
The Commodities Feed: US announces SPR purchase

The Commodities Feed: US announces SPR purchase

ING Economics ING Economics 16.05.2023 10:56
The oil market strengthened yesterday on the back of the US announcing it will start refilling its Strategic Petroleum Reserve (SPR). Meanwhile, today’s Chinese industrial output data was mostly disappointing, however, Chinese oil refining activity and apparent demand over April should be supportive Source: Shutterstock Energy – US set to start SPR refill Oil prices finally managed to settle higher yesterday with ICE Brent closing more than 1.4% up on the day, and this strength has continued in early morning trading today. While large parts of the commodities complex moved higher yesterday, for oil, part of the move was driven by the US Department of Energy (DoE) announcing that it will be looking to buy up to 3MMbbls of sour crude oil for the SPR. Delivery of the oil will be for August and results will be announced in June. The volumes are relatively small, particularly when you consider the DoE released more than 220MMbbls from the SPR in 2022. However, the move does show that the US administration is serious about refilling the SPR, something that the market started doubting in recent months. The latest activity data from China shows that Chinese refiners processed 14.88MMbbls/d of crude oil in April, down from 14.94MMbbls/d in March, but up 17.6% year-on-year. The month-on-month decline in refinery activity should not be a surprise due to refinery maintenance. The latest activity data and April trade data suggest that domestic apparent oil demand exceeded 15MMbls/d over the month – record levels. The numbers also suggest that crude oil inventories fell by around 300Mbbls/d in April. The IEA will release its latest monthly oil market report later today and the market will likely be focusing on whether the agency made any revisions to its demand growth forecasts for the year, given growing concerns over the outlook. In last month’s report, the IEA forecast that 2023 oil demand would grow by 2MMbbls/d – 90% of this growth is expected to come from non-OECD countries. Metals – Copper mine halts operations in China China’s Zijin Mining Group Co. said that mining operations were halted at one of its mines in Tibet following an accident. The mine is one of three mines run by Tibet Julong Copper Co. and has a total production capacity of 160kt per year. In zinc and lead, data from the International Lead and Zinc Study Group (ILZSG) show that the global zinc market remained in a supply surplus of 44kt in the first three months of the year compared to a supply surplus of 116kt a year earlier. Total refined production remained almost flat at 3.36mt, while total consumption rose by 1.7% YoY to 3.32mt between January and March 2023. As for lead, total production reported gains of 2.7% YoY to 3.08mt, while consumption fell by 1.3% YoY to 3.1mt in the first three months of the year. The lead market was estimated to have seen a marginal supply deficit of 19kt in the first quarter of the year, lower than the 143kt deficit during the same time last year. Recent data from the China Iron and Steel Association (CISA) show that steel inventories at major Chinese steel mills fell to 17.6mt in early May, down 2.8% compared to late April. Crude steel production at major mills increased by 2% in the period to 2.25mt/d in early April. Agriculture– Potential sugar release from China There are reports that the Chinese government is planning to release roughly 1mt of sugar from the state reserves given the strength that we have seen in global sugar prices. Given China is a key raw sugar importer, any significant release of sugar from government reserves potentially means lower imports from China, which would offer some relief to the global sugar market. The latest data from the Uganda Coffee Development Authority show that Uganda’s coffee shipment fell 23% month-on-month and 8% YoY to 373,610 bags of coffee (the lowest since October) in April as an early drought hit yields. Cumulative shipments for the season (October to April) stood at 3.16m bags, down 4% YoY. Read next: Disappointing activity data in China suggests more fiscal support is needed| FXMAG.COM The USDA’s weekly export inspection data for the week ending 11 May show that US corn and wheat shipments rose while soybean exports slowed over the last week. US weekly inspection of corn exports stood at 1,173.8kt, higher than the 974.5kt in the previous week and 1,060.6kt reported a year ago. For wheat, export inspections stood at 242.3kt, up from 214.5kt last week but lower than 348.9kt seen for the same period last year. Soybean export inspections stood at 147.9kt, lower than 397.8kt from a week ago and 804.1kt from a year ago. Read this article on THINK Tags Sugar Steel SPR Oil IEA Grains Copper Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

The Commodities Feed: Black Sea grain deal extended

ING Economics ING Economics 18.05.2023 11:56
The bulk of the commodities complex benefitted from the risk-on move across markets yesterday. However, wheat prices came under pressure with an extension to the Black Sea grain deal Energy - Large US crude build It was a risk-on move across markets yesterday with optimism growing that a deal will be made on the US debt ceiling. This saw ICE Brent close more than 2.7% higher on the day. The oil market continues to be driven by external developments, rather than fundamentals. The market ignored a largely bearish EIA inventory report. US commercial crude oil inventories increased by 5.04MMbbls over the week, which was more than the 3.69MMbbls build reported by the API the previous day and also more than the market was expecting. It is also the largest weekly crude build since mid-February. The changes in refined product stocks were also underwhelming, with gasoline inventories falling by just 1.38MMbbls, whilst distillate stocks increased by 80Mbbls. Demand also disappointed. Implied demand fell by 606Mbbls/d over the week. Declines were seen in gasoline, distillates and jet fuel, although for now, the 4-week average for implied gasoline and jet fuel demand is still above seasonal norms. The 4-week average for implied distillates demand has, however, dipped below the 5-year average for this time of year. Read next: Asia Morning Bites - 18.05.2023| FXMAG.COM The European gas market remains under pressure with prompt TTF falling closer towards EUR30/MWh and this is on the back of growing confidence in a comfortable balance. EU gas storage is a little over 64% full at the moment, well above the 41% seen at the same stage last year and above the 5-year average of 46%. The pressure at the front end of the TTF curve is also starting to put a lot more pressure on 2023/24 winter prices. Up until recently these forwards were holding up relatively well given concern over the balance through the 2023/24 winter. However, more recent changes in the forward curve suggest the market is becoming less concerned about the next heating season. Agriculture - Black Sea grain deal extended The Black Sea grain deal was extended yesterday for an additional 2 months, which will help ease some supply concerns in the market. However, given the short extension, the market will have to continue to deal with uncertainty over what happens next. When the Black Sea Grain Initiative was first implemented, the idea was that the deal would run for 120-day periods. An extension to the deal also does not mean that grains will flow freely. Ukraine has said that flows have slowed significantly due to issues around inspections. However, news of the extension still saw CBOT wheat settling 3.4% lower yesterday. Read this article on THINK Tags Ukraine TTF Oil Natural gas Grains EIA Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Commodities Feed: Specs continue to cut oil longs

The Commodities Feed: Specs continue to cut oil longs

ING Economics ING Economics 22.05.2023 11:27
The latest positioning data shows that speculators remain bearish towards the oil market. Meanwhile, US producers continue to reduce drilling activity Source: iStockphoto Energy - Specs continue to cut Oil managed its first week of gains since mid-April. ICE Brent settled 1.9% higher over the last week, which has left it trading above US$75/bbl. Despite this, speculators remain negative towards the market with the net speculative long in ICE Brent falling by 6,020 lots over the last reporting week to 106,722 lots as of last Tuesday. This is the smallest position that speculators have held this year. Looking deeper into the data reveals that the move was driven by longs liquidating, while the gross short position is fairly sizeable at 94,880 lots. Meanwhile, ICE gasoil continued to see further short covering over the last week. Speculators bought back 7,059 lots over the last reporting week to leave them with a net short of 20,652 lots. This still leaves speculators holding a large net short in gasoil, which suggests that there is still the risk of a short covering rally. Drilling activity in the US continues to slow. The latest data from Baker Hughes shows that the oil rig count fell by 11 over the last week to 575. This is the lowest count since June 2022 and the rig count has now fallen by 48 from a YTD peak of 623 seen back in January. A slowdown in US drilling activity is a concern for the oil market, which is expected to see a sizeable deficit over the second half of this year. Producers appear to be responding to the weaker price environment, rather than expectations for a tighter market later in the year. The macro picture is also likely making producers a little more hesitant. However, the trend will be good news for OPEC+, as it suggests that they will be able to continue supporting prices without the risk of losing market share to US producers. Metals - China metal output rises Recent data from the Shanghai Futures Exchange (ShFE) shows that weekly inventories for all base metals declined over the last week. Copper weekly stocks fell by 15,872 tonnes to 102,511 tonnes as of Friday. Among other metals, weekly exchange inventories for nickel fell sharply by 48% WoW to a fresh low of 908 tonnes, while aluminium inventories fell 9% WoW, and zinc and lead stocks fell 7.6% and 20.2% WoW respectively as of Friday. The recent numbers from the National Bureau of Statistics (NBS) show that refined copper output in China rose 14% YoY to 1.06mt in April, while zinc and lead output rose 13% YoY to 594kt and 4% YoY to 614kt respectively. The latest trade data from China Customs show that imports of unwrought aluminium and products rose 27% YoY to 223kt in April. This leaves cumulative imports over the first four months of the year at 797.6kt, up 12.6% YoY. On the export side, alumina exports jumped 56.4% YoY to 70kt last month, while YTD exports have risen by 100% YoY to 380kt. This increase is driven largely by stronger flows to Russia. Agriculture – China's corn imports fall The latest trade numbers from China Customs show that corn imports declined significantly by 54.6% YoY to 1.0mt last month, which leaves cumulative imports so far this year at 8.5mt, down 8.4% YoY. While corn imports came under pressure, wheat imports surged 141% YoY to 1.68mt in April, which takes cumulative imports over the first four months of the year to 6.03mt, up 61% YoY. Read next: FX Daily: This could be another good week for the dollar| FXMAG.COM The latest CFTC data shows that money managers reduced their net bearish bets in CBOT corn by 17,658 lots over the last week to 91,985 lots as of 16 May. The move was predominantly driven by an increase in gross longs. Similarly, the speculative net short position in CBOT wheat decreased by 4,137 lots to 112,769 lots over the last reporting week. However, the pressure seen on prices since the reporting week, due to an extension in the Black Sea grain deal, suggests that speculators have likely increased their net shorts in both corn and wheat more recently. Read this article on THINK Tags Speculators Rigs Oil Metals Grains China trade Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Commodities Feed: Debt ceiling talks & a more hawkish Fed

The Commodities Feed: Debt ceiling talks & a more hawkish Fed

ING Economics ING Economics 23.05.2023 10:37
Oil has managed to hold up relatively well, despite little progress in US debt ceiling talks as well as some more hawkish comments from US Fed officials A US debt ceiling deal inches closer as talks continue Energy - oil edges higher The oil market managed to edge higher yesterday despite there still being little progress in US debt ceiling talks as well as some hawkish comments from Fed officials. A couple of officials suggested that the Fed may still have to hike rates further. Obviously, the more the Fed increases rates, the more likely we are to see a hard landing, which would hit oil demand hard.  For now, we are assuming that 2023 US oil demand will be largely flat year-on-year. Despite the move higher yesterday, sentiment still remains mostly negative in the oil market and this is evident in positioning data which shows that speculators have reduced their net long in ICE Brent significantly in recent weeks. Positioning data shows that there is still a sizeable gross short in ICE Brent, however, these shorts will want to be careful as we approach the next OPEC+ meeting, which is scheduled for 4 June. OPEC+ have surprised the market a couple of times recently, so market participants may be reluctant to carry too much risk into this meeting. The 650Mbbls/d Dangote oil refinery in Nigeria has finally opened after years of delays. While the refiner has said it will start shipping refined products by July or August, it is still unclear how quickly it will be able to ramp up operations. According to reports, there has been little in the way of commercial activity from the refiner, which suggests that any meaningful volumes coming out of the refinery will still be several months away at least. The refinery will be important for both crude and product trade flows when fully operating, potentially meaning reduced crude exports as well as reduced imports of refined products. Metals – Global aluminium output remains flat The latest numbers from the International Aluminium Association (IAI) show that daily global primary aluminium output stood at 187.6kt in April, compared to 187.5kt a month earlier. Total monthly output for the metal remained almost flat year-on-year at 5.63mt in April, although it was down 3.2% MoM.  Cumulative aluminium production over the first four months of the year rose 2% YoY to 22.6mt. Chinese output is estimated to have fallen 3.2% MoM, while remaining flat YoY at 3.3mt in April. Although YTD production is still up 3.3% to 13.3mt.  Production in Western and Central Europe is still under pressure, falling 2.6% MoM and 8.2% YoY to 262kt in April. Read next: Asia Morning Bites - 23.05.2023| FXMAG.COM Agriculture – ISO expects global sugar surplus to shrink In its latest report, the International Sugar Organization (ISO) expects the global sugar surplus to fall to 852kt in 2022/23, down about 79% from its previous estimate. Total sugar output projections were trimmed to 177.4mt for 2022/23, compared to a previous estimate of 180.4mt, due to lower output from the EU, India and Thailand. In contrast, the group expects global consumption to increase to 176.5mt in 2022/23, up by 233kt from its previous estimate. The latest reports from the Joint Coordination Centre showed that Ukraine’s exports under the Black Sea Grain Initiative stood at 118.3kt for the week ending 21 May, down 78% WoW. While the deal has been extended for two months, no inbound vessels were cleared in that week which led to a significant drop in volumes. However, considering the recent extension, we may see a revival in Ukrainian exports in the weeks ahead. The USDA’s weekly export inspection data for the week ending 18 May show that US corn and wheat shipments rose while soybean exports eased over the last week. US weekly inspections of corn for export stood at 1,323.1kt, up from 1,173.8kt in the previous week but lower than the 1,752.5kt reported a year ago. For wheat, export inspections stood at 407.7kt, up from 263.4kt last week and 275.5kt seen for the same period last year. Soybean export inspections stood at 155.1kt, lower than 186.8kt from a week ago and 582.3kt from a year ago. The USDA’s latest crop progress report continues to show that US corn plantings are progressing well with 81% of plantings completed, this is up from 69% at the same stage last year and also above the 5-year average of 75%. Similarly, soybean plantings are advancing quickly with 66% planted as of 21 May, well above the 47% seen at the same stage last year and also above the 5-year average of 52%. Meanwhile, spring wheat plantings are 64% complete, which is above the 48% planted at the same stage last season, but still below the 5-year average of 73% for this time of year. Read this article on THINK Tags USDA Sugar Refined product Grains Federal Reseve Debt ceiling Aluminium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Fed Rate Hike Expectations Wane, German Business Climate Declines

Market Update: Copper Inventory Withdrawals Tighten Spread, Saudi Arabia Raises Oil Prices

ING Economics ING Economics 06.06.2023 12:28
The Commodities Feed: Copper spread tightens on inventory withdrawals Oil prices are trading under pressure this morning on demand side uncertainties as Saudi Arabia increased the official selling price for July deliveries for all regions. LME copper continues to see inventory withdrawals as demand in Asia picks up.   Energy – Saudi increases the official selling price for oil Saudi Arabia increased its official selling price for all regions for July, a day after the nation pledged an additional oil supply cut for the same month. Saudi Aramco will sell the Arab Light crude for buyers in Asia at a US$3/bbl premium for July deliveries, an increase of US¢45/bbl compared to June 2023.The premium for the US and European deliveries has increased by US¢90/bbl, while buyers in the Mediterranean region will see an increase of US¢60/bbl. The hike in premium comes as a surprise considering ongoing demand concerns and that Saudi Arabia has been pushing for supply cuts to bring the oil market into balance.   Metals – Declining copper on-warrant stocks tighten LME spread Recent LME data shows that total on-warrant stocks for copper dropped by 17,750 tonnes – the biggest daily decline since October 2021 – for a second consecutive session to 71,575 tonnes (the lowest level in almost a month) as of yesterday. The majority of the outflows were reported from South Korea’s Busan warehouses. Meanwhile, cancelled warrants for copper rose by 18,025 tonnes after declining for three consecutive sessions to 27,375 tonnes yesterday, signalling potential further outflows. The cash/3m for copper stood at a contango of just US$4/t as of yesterday – compared to YTD highs of a contango of US$66.26/t from 23 May – indicating supply tightness in the physical market.   In mine supply, Peru’s latest official numbers show that copper output in the country rose 30.5% year-on-year (+1.2% month-on-month) to 222kt in April. The majority of the annual production gains came from the higher output levels from mines like Southern Peru Copper, the Las Bambas and Cerro. Cumulatively, copper production grew 15.7% YoY to 837.5kt in the first four months of the year. Among other metals, zinc production in the nation increased 31.4% YoY to 130.6kt in April.   In ferrous metals, the most active contract of iron ore trading at the Singapore Exchange extended its upward rally for a fifth consecutive session and traded above US$108/t this morning on speculations of more supportive steps from China to accelerate its economic growth. The recent market reports suggest that the People’s Bank of China is likely to cut the reserve-requirement ratio for banks and might also lower interest rates in the second half of the year. Meanwhile, BBG also reported that the Chinese government is preparing a new batch of measures to push growth in the property market.     Agriculture – US crop planting maintains the pace The USDA’s latest crop progress report shows that US corn plantings continue to rise with 96% of plantings completed as on 4 June, compared to 93% of planting done at this point in the season last year and the 5-year average of 91%. Similarly, soybean plantings are also growing, with 91% planted as of 4 June – well above the 76% seen at the same stage last year and the 5-year average of 76%. Meanwhile, spring wheat plantings are 93% complete. This is above the 81% planted at the same stage last season and in line with the 5-year average. Meanwhile, the agency rated around 36% of the winter wheat crop in good-to-excellent condition, up from 34% a week ago and 30% seen last year.   The USDA’s weekly export inspection data for the week ending 1 June indicated a drop in demand for US grains over last week. The agency stated that US corn export inspections stood at 1,181kt, lower from 1,346.4kt in the previous week and 1,458.5kt reported a year ago. For wheat, export inspections stood at 291.6kt, down from 391.3kt from the previous week and 355.3kt reported a year ago. Similarly, soybean export inspections fell to 214.2kt, compared to 243.1kt from a week ago and 370kt from a year ago.   The director general of the Ivory Coast's cocoa regulator, Conseil Café Cacao, stated that the domestic cocoa crop is expected to improve in 2022-23 (compared to the previous year) despite intensifying concerns about a potential outbreak of the swollen shoot virus. Ivory Coast cocoa production is stabilizing despite a slow start, taking the season's harvest projections between 2mt-2.2mt. Last week, the International Cocoa Organization (ICCO) projected an increase of 4% in Ivory Coast's cocoa output this season, reaching 2.20mt.
Treading Carefully: Federal Reserve's Rate Hike Pause, ECB and Bank of England on the Horizon

China's Imports Recover: Crude Oil, Natural Gas, and Copper Boost Market Sentiment

ING Economics ING Economics 07.06.2023 10:48
The Commodities Feed: China's imports recover China’s crude oil and natural gas imports recovered strongly in May, which could help improve market sentiment. For copper, China’s concentrate imports jumped to a fresh high, while unwrought copper imports remain soft.   Energy – China's crude oil imports recover China’s crude oil imports recovered to 51.44mt or around 12.16MMbbls/d (up 17% month-on-month and 12% year-on-year) in May 2023, as some of the refineries increased their utilisation rate after concluding maintenance. Demand slowdown from China has been a major concern for the crude oil market recently, and a recovery in oil imports is likely to provide some comfort to the oil market. Higher refinery utilisation has also increased refined product supplies in the Chinese market, with China reverting to being a net exporter of refined products last month. Among other energy products, natural gas imports into China increased 17.3% YoY to 10.6mt in May as lower gas prices in the Asian market supported demand for storage.   In its latest short-term energy outlook report, the Energy Information Administration (EIA) revised higher domestic oil production estimates, as the decision by OPEC+ to extend output cuts could push oil prices higher and bring more investments into exploration.   The administration revised higher the production estimates to 12.61MMbbls/d for 2023 compared to earlier estimates of 12.53MMbbls/d and output of 11.88MMbbls/d in 2022. For 2024, production estimates are revised higher to 12.77MMbbls/d compared to earlier estimates of 12.69MMbbls/d. On the other hand, US demand for crude oil is revised down from 20.47MMbbls/d to 20.42MMbbls/d on slow demand for distillates – although this is still higher than the 20.28MMbbls/d of consumption in 2022.   Meanwhile, the American Petroleum Institute (API) reported that the US crude oil inventories decreased by 1.71MMbbls over the last week, in contrast to market expectations for the addition of around 350Mbbls. Cushing crude oil stocks are reported to have increased by 1.53MMbbls. On the products side, API reported that gasoline and distillates inventories rose by 2.42MMbbls and 4.5MMbbls respectively over the week ending 2 June. The more widely followed EIA report will be released later today.     Metals – Chinese copper concentrate imports at record highs China released its preliminary trade data for metals this morning, which shows total monthly imports for unwrought copper fell 4.6% YoY to 444kt in May, largely on account of higher domestic production of the refined metal. Cumulatively, unwrought copper imports fell 11% YoY to 2.14mt in the first five months of the year.   Meanwhile, imports of copper concentrate rose 16.7% YoY to a fresh record of 2.56mt last month, with year-to-date imports up 8.8% YoY to 11.31mt from January to May this year. In ferrous metals, iron ore monthly imports rose 3.9% YoY (+6.3% MoM) to 96.17mt last month, while cumulative imports are up 7.7% YoY to 480.7mt from January to May.   On the exports side, China’s unwrought aluminium and aluminium products shipments fell 29.7% YoY to 475.4kt last month while year-to-date exports declined 20.2% YoY to 2.32mt in the first five months of the year. Exports of steel products jumped 41% YoY to 36.4mt from January to May this year.   Meanwhile, data from the Mines and Geosciences Bureau shows that nickel output in the Philippines rose 5.4% YoY to 3.9dmt in 1Q23 despite only a few mines being in production. The bureau reported that only 13 out of the nation’s 33 operating mines reported output for the above-mentioned period, as some were impacted by unfavourable weather conditions while few were undergoing scheduled maintenance.   However, the bureau remains optimistic about the outlook for the mining industry over the long term, following the expected recovery of the global economy and strong demand for nickel ore.     Agriculture – Chinese soybean imports surge The latest trade numbers from Chinese Customs show that soybean imports in China rose 24.3% YoY (+65.6% MoM) to a record high of 12.02mt in May. The imports surged sharply as the delayed cargoes (due to last month's strict inspections) were finally unloaded at ports. Cumulatively, soybean imports rose 11.2% YoY to 42.3mt over the first five months of the year.   Weekly data from the European Commission show that soft wheat shipments from the EU reached 28.9mt for the season as of 4 June, up 11.4% compared to 25.9mt from the same period last year. Morocco, Algeria, and Nigeria were the top destinations for these shipments. Meanwhile, the EU’s corn imports stood at 24.6mt, compared to 15.3mt reported a year ago.
China Boosts Gold Reserves: Central Banks and Metals Market Updates

China Boosts Gold Reserves: Central Banks and Metals Market Updates

ING Economics ING Economics 09.06.2023 09:06
Metals: China continues to boost gold reserves The latest data from the People’s Bank of China (PBoC) shows that China increased its gold reserves for a seventh straight month amid ongoing strong demand for safe assets. The nation raised its gold reserves by about 0.5mOz to a total of 67.27mOz at the end of May 2023.   China has added over 2.6mOz of gold to its reserves since the start of the year and nearly 4.6mOz since restarting gold purchases in November 2022. A recent survey by World Gold Council (WGC) conducted in May shows that about a quarter of central banks plan to increase their gold holdings over the next 12 months as the future role of the US dollar comes into question.   Meanwhile, a recent survey from Shanghai Metals Market shows that China’s primary aluminium output rose to 3.47mt in May as some smelters in Guizhou province restarted operations. The group further believes the nation’s aluminium output could rise in June, as smelters in Yunnan province are expected to restart operations on increased power supplies. Among other metals, refined nickel output rose 30.3% YoY (+5.7% MoM) to 18.6kt last month as producers ramped up production levels.   Agriculture: Ukraine grain shipments decline The latest data from Ukraine’s Agriculture Ministry shows that domestic grain exports so far in the 2022/23 season stood at 46mt, a marginal decline of 3% YoY. The above includes wheat exports of 15.7mt, down 15.7% YoY and corn exports at 27.3mt, up 21% YoY. The fall in exports is in line with the series of obstacles faced by Ukrainian shipments in recent months. Recent data from Brazil’s Trade Ministry shows that Brazil’s soybean exports rose 46.5% YoY to 15.6mt in May, while cumulative shipments increased by 14% YoY to 49mt in the first five months of the year. Shipments to China jumped 60% YoY to 10.3mt in May 2023 whilst exports to Argentina reached a record high of 979kt. In contrast, corn exports fell 64.6% YoY to 385kt in May. However, year-to-date shipments expanded from 5.3mt to 10.64mt in Jan’23-May’23.
China's Interest Rate Cut Boosts Industrial Metals, Russian Aluminium Dominates LME Warehouses; USDA Slashes Corn Crop Ratings Due to Dry Weather

China's Interest Rate Cut Boosts Industrial Metals, Russian Aluminium Dominates LME Warehouses; USDA Slashes Corn Crop Ratings Due to Dry Weather

ING Economics ING Economics 13.06.2023 13:24
Metals – Share of Russian aluminium in LME warehouses grows Industrial metals (except for nickel) edged higher in the morning session as China trimmed its short-term policy interest rate unexpectedly. The People’s Bank of China lowered its 7-day reverse repurchase rate by 10bps to 1.9% in a sign that Beijing has been taking measures to support flagging economic growth. The move also provides some confidence to the market that China could take further steps to push up economic growth.   Recent data from LME shows that the share of Russian aluminium inventory out of total exchange inventory increased to 68% in May from 52% in April following increased withdrawals of aluminium from LME warehouses in Asia. The data shows that there was a total of 263,125 tonnes of Russian aluminium in exchange warehouses, while Indian-origin aluminium stood at 116,800 tonnes falling from 46.5% in April to 30% in May. Meanwhile, the exchange said that 19% of the 167,550 tonnes of aluminium requested for delivery in May was still Russian metal.   Agriculture – USDA slashes weekly corn crop ratings on dry weather The United States Department of Agriculture's (USDA’s) latest crop progress report shows that US soybean plantings continue to rise with 96% planted as of 11 June, well above the 87% seen at the same stage last year and above the five-year average of 86%.     Similarly, spring wheat plantings are 97% complete, which is above the 92% planted at the same stage last season, and in line with the five-year average. On the crop condition, the agency rated around 38% of the winter wheat crop in good-to-excellent condition, up from 36% a week ago, and 31% seen last year. On the other hand, the USDA rated 61% of the corn crop in good-to-excellent condition as of 11 June, lower from 64% a week ago and 72% seen at the same stage last year, largely on account of dry weather.   The USDA’s weekly export inspection data for the week ending 8 June pointed towards weakening demand for US grains. USDA’s export inspections of corn stood at 1,169.1kt in the abovementioned period, lower than the 1,206.8kt in the previous week and 1,221.8kt reported a year ago. For wheat, US export inspections stood at 246.6kt, down from 304.4kt from a week ago and 411.9kt reported a year ago. Meanwhile, US soybean export inspections fell to 140.2kt compared to 222.3kt from a week ago and 609kt from a year ago.
US Inflation Data in Focus as Attention Shifts, UK100 Rebounds with Caution Looming

Impact of Energy Price Trends on CEE CPI: Analysis and Outlook

ING Economics ING Economics 14.06.2023 08:15
Energy price trends: impact on CEE CPI Representing 11-18% of the consumer basket, energy prices matter for the CPI dynamic in the CEE, and last year’s spike in global commodities translated into an acceleration of the CPI, the headline more so than the core CPI. However, it should be noted that the post-Covid spike in price growth results not only from energy inputs, but also other supply- and demand-side factors that are not the focus of this exercise.   One observation we have is that, unlike the trade balance, global commodity prices pass through into the local consumer prices with a lag and to a lesser extent due to price offsetting countermeasures taken by local governments. Looking at the non-core portions of country CPIs, it appears that Turkey saw the biggest non-core CPI growth of 12ppt in 2022, but that could have been largely the effect of the country’s unorthodox monetary policy and TRY depreciation.   Among our selected CEE countries, the Czech Republic and Poland saw the biggest (5-7ppt) non-core consumer price increases in 2022, while Hungary’s pick up in headline CPI seems to have been a result of a polycrisis (indirect effect of energy shocks, supply chain disruptions, rapid HUF weakening and productivity issues, mainly in agriculture). The Czech Republic’s sharper pass-through appears surprising given its relatively low share of energy in the CPI.   Looking forward, the positive effect of 2023 energy price moderation will only have a limited effect on CPI trends due to inertia and the fact that the drop or moderation in local energy price growth will be offset by continued acceleration in the core CPI. Within the CEE space, the Czech Republic, Poland and Romania are expected to see a deceleration of overall CPI by 1.6-4.1ppt thanks to a 4.6-5.9% slowdown in non-core CPI, while Hungary may see a pick-up. Turkey is a separate case, where CPI is expected to decelerate from 64% in 2022 to 47% in 2023, and purely on the core CPI components.   CE4 non-core CPI versus global energy prices   Looking at the impact on individual countries, energy has had only an indirect effect on Hungary’s inflation due to government support measures. Thus, the drop in global energy prices will have only a lagged positive impact on inflation. Like others in the region, lower energy prices are creating opportunities for the Czech and Polish governments to pressure the margins of the fuel retailers.   This creates downside risks to inflation and could provide room for rate cuts later this year. While being self-sufficient in energy to the greatest extent, Romania is still a price taker and had to abruptly cap prices for consumers. Even so, consumption dropped by 9.3% in 2022 and the acceleration of photovoltaic panel installation is determining large structural changes within the energy system. The business economy has nevertheless been exposed to higher prices and, to the extent possible, it might want to recover some of the losses when prices revert to more normal levels.   Turkey meets only a quarter of its energy demand from national resources (importing 99% of its natural gas and 93% of the petroleum it uses). While the country has been trying to diversify energy sources, lower energy prices should help to significantly improve external imbalances and reduce dependency on its suppliers.
FOMC Minutes Reveal Policy Divisions as USD/JPY Falls Sharply

Oil Market Update: Demand Hopes Drive Recovery, OPEC Holds Estimates Steady

ING Economics ING Economics 14.06.2023 14:05
The Commodities Feed: Oil recovers on demand hopes Prospects of Chinese stimulus and an unchanged demand estimate from OPEC were supportive of oil prices yesterday with ICE Brent recovering to above US$74/bbl. For agriculture, CONAB has raised its corn and soybean production estimates for Brazil on favourable weather.   Energy – OPEC keeps supply demand estimates unchanged OPEC released its latest monthly oil market report yesterday, in which it left global oil demand growth projections unchanged at around 2.3MMbbls/d for 2023 with global oil demand pegged at 101.9MMbbls/d. However. OPEC highlighted the uncertainties to this outlook due to global economic developments and ongoing geopolitical tensions that could change the demand dynamics.   On the supply side, non-OPEC supply growth estimates for the year were left unchanged at 1.4MMbbls/d with global non-OPEC oil supply estimated to be around 67.2MMbbls/d. The group continues to see the requirement for OPEC crude at around 29.3MMbbls/d for 2023 compared to the actual output of 28.8MMbbls/d for the first quarter and 28.1MMbbls/d in May 2023. OPEC’s crude oil production dropped by 464Mbbls/d in May 2023 due to supply cuts from Saudi Arabia (-519Mbbls/d) and the UAE (-140Mbbls/d).     Meanwhile, the API reported that the US crude oil inventories increased by around 1MMbbls over the last week, in contrast to the average market expectations of the addition of around 0.3MMbbls. Cushing crude oil stocks are reported to have increased by 1.5MMbbls. On the products side, API reported that gasoline and distillates inventories rose by 2.1MMbbls and 1.4MMbbls respectively, over the week ending 9 June. The more widely followed EIA report will be released later today.     The latest market reports suggest that the US could purchase around 12MMbbls of crude oil for its State Petroleum Reserves as soft crude oil prices provide comfort on the supply side. The abovementioned figure includes the 3MMbbls of crude oil that is scheduled for delivery in August and another 3MMbbls/d of purchase that the US approved last week. SPR witnessed a withdrawal of around 180MMbbls last year (pushing total SPR inventory to a 40-year low of 354MMbbls currently) due to crude oil supply shortages after the Russia-Ukraine war and these purchases are aimed to refill the inventory.
Recovering Economy: Ukraine's International Reserves Surge, Limited Devaluation Risks, and Positive Growth Outlook

Recovering Economy: Ukraine's International Reserves Surge, Limited Devaluation Risks, and Positive Growth Outlook

ING Economics ING Economics 15.06.2023 08:25
Country strategy: Limited short-term risks to the hryvnia Ukraine’s international reserves exceeded nearly US$36bn in May, for the first time since 2011. This reflected continued foreign aid and lower monthly costs of FX interventions (c.US$2bn in May, down from the monthly peak of US$4bn in June 2022). This significantly deceases near-term odds of another devaluation of the hryvnia, as the central bank may prefer a stable currency to combat inflation. The fundamental factors behind the hryvnia remain unsupportive though. Ukraine is running a significant trade deficit, as exports collapsed in 2022, while imports remained quite stable. With the central bank aiming to re-liberalise the FX market at some point this signals risk of further devaluation in the future.   Forecast summary     Positive growth in 2023 to follow 30% GDP wartime losses The Russian invasion in 2022 has brought huge human, social and economic losses to Ukraine. The country’s GDP shrank by nearly 30% in 2022. According to the World Bank estimates, sectoral output declined by about 60% in industry, 25% in agriculture and 20% in services. In the second half of 2022, severe disruptions to businesses were caused by damage to energy infrastructure, which impacted around 40% of Ukraine’s power grids. Out of about 20 million refugees, 8 million are yet to return home. The country’s economy seems to have passed the greatest shock and, on our estimates, real GDP is set to recover gradually and reach 2% positive growth in 2023, and accelerate in subsequent years, driven mainly by consumption.    GDP growth (%)
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China's Steel Production Declines, Coffee Quality Premium Falls: Market Updates

ING Economics ING Economics 15.06.2023 11:53
Metals – China steel production extends decline The latest numbers from the National Bureau of Statistics (NBS) show that monthly crude steel production in China fell by 7.3% year-on-year and 2.7% month-on-month for a second consecutive month to 90.1mt in May 2023 as domestic steel producers continue to curb output amid falling margins.   Meanwhile, cumulative output rose by 1.6% YoY to 444.6mt over the first five months of the year – overall growth was impacted by the lower production numbers in the April and May months. Among other metals, Chinese primary aluminium production rose by 1.1% YoY to 3.42mt in May 2023. Cumulatively, output rose almost 3.4% YoY to a total of 16.7mt over the first five months of the year. Chinese primary aluminium production might pick up in the coming months given the recent plans of Yunnan to bring back about 1mt of capacity from the end of next month.   Meanwhile, spot gold prices extended the downward rally for a fifth straight session and were trading marginally down this morning, following the latest comments from the Federal Reserve that more rate hikes are possible as the risks to inflation are still on the upside. At its latest meeting, the Fed kept interest rates steady at 5-5.25%.   Looking at the ETF holdings, gold ETFs reported outflows of 12.9koz yesterday, (the 12th consecutive session of outflow) taking the total known gold ETF holding to 93.8mz as of yesterday, the lowest level since 8 May.       Agriculture – Coffee quality premium continues to fall The spread between Robusta and higher-quality Arabica coffee dropped to around US¢59.7/lb this week (the lowest since December 2020), following the diverging fundamentals between the two types of coffee. Robusta coffee inventories in major producing regions such as Vietnam, Indonesia, and India are shrinking given the increased demand. Moreover, concerns about the potential impact of El Nino weather on crops in the nations near the Pacific have also been supporting robusta prices. The USDA projected a 5% YoY decrease in Brazil's Robusta coffee output for the season to 21.7m bags due to poor weather conditions. On the other hand, Arabica coffee prices have been under pressure due to the prospects of a massive crop from Brazil and weaker global demand. The commencement of harvest in Brazil for the season, following two years of lower production due to bad weather, has added to the downward pressure on Arabica prices.
RBA Expected to Pause as Inflation Moves in the Right Direction

Narrowing Forecasts and Market Expectations: Insights on the National Bank of Hungary's Monetary Policy and Market Views

ING Economics ING Economics 16.06.2023 15:56
What about the forecast changes? Perhaps the most important change will be that, as the extreme risk scenarios have now disappeared, the central bank will hopefully also narrow the updated forecast ranges when it presents the main figures in the June Inflation Report. A narrowing of the forecast range downward would send a rather strong message regarding GDP growth in 2023. This would put the central bank in the ranks of those who do not think it likely that GDP growth of 1.5% will be achieved this year. However, as the economic outlook now depends largely on the performance of agriculture, it may still be justified to maintain a wider band.   ING's expectations regarding the NBH's forecasts   There is a lot of uncertainty around GDP growth next year, so perhaps there is no point in seriously revising expectations. As for inflation, the NBH is likely to raise its forecast, if only because of the change in the excise duty from 1 January 2024. In addition, an inflation rate clearly above 3% could also send an important message to markets, supporting the central bank's new stance that sustained tight monetary policy with a continuous real positive interest rate environment is needed to achieve the inflation target in a sustainable manner.   Our market views The Hungarian forint has come under pressure for the first time in a while, reaching its weakest level against the euro since the end of May. We see EUR/HUF in a 368-378 range for the rest of the year and see the current higher values as only temporary. The market will probably want to wait for the NBH meeting to see how it sees the situation. However, we believe the market will use weaker forint levels as an opportunity to build new positions and benefit from the highest FX carry within the region. Thus, we expect the forint to return more towards the lower end of our range around EUR/HUF 370 next week.   In the rates space, we see the market more or less fairly pricing in the rate cuts this year and the super short end is thus anchored. However, looking at the longer 1-3y horizon, we see room for the market to further price in some normalisation of NBH policy. Our long-term view thus remains unchanged and the 2s10s spread should steepen with the entire curve moving lower, and catching up with the market. In the short term, for next week, we see major scope for a move within the short end of the curve and a flattening in the 1s3s segment that may get the market's attention.   Hungarian Government Bonds (HGBs) have had a massive rally in recent weeks and are posting the highest overall returns in the CEE region this year. We continue to like HGBs, which benefit the most from the whole story in Hungary, further supported by government measures and funding fully under the control of the debt agency. In the coming days, we could see some profit-taking and upward yield pressure from core rates, however, we still see HGBs as expensive relative to CEE peers. On the other hand, it is hard to see a significant trigger for a sell-off and we expect the market to continue to like HGBs.
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Metals: Zinc and Lead Stocks Climb, Agriculture: IGC Lowers Corn Output Estimates

ING Economics ING Economics 30.06.2023 09:39
Metals – Zinc and lead on-warrant stocks climb Recent LME data shows that total on-warrant stocks for lead increased by 1,075 tonnes to 41,225 tonnes as of yesterday, the highest since February 2022. The majority of the additions came from the warehouses in Port Klang, Malaysia. As for zinc, on-warrant stocks rose by 2,625 tonnes to 68,350 tonnes.     Agriculture – IGC lowers corn output estimates In its latest monthly update, the International Grains Council (IGC) lowered its 2023/24 global corn output forecasts from 1,217mt to 1,211mt, while consumption projections were reduced to 1,205mt from a previous forecast of 1,211mt. Weaker consumption means that global corn ending stocks are expected to increase from 272mt to 276mt. For wheat, the council revised its global ending stock estimates down from 271mt to 264mt, despite a slight increase in output forecasts. The reduction in stocks was driven by expectations of stronger demand.   The USDA’s weekly net export sales for the week ending 22 June showed strong demand for US corn and wheat, while soybean shipments dropped over the previous week. US corn shipments surged to 263.9kt, compared to the 83.1kt reported in the previous week and 208.1kt from a year ago. Similarly, wheat exports rose to 155.2kt, higher than the 123.9kt reported a week ago but lower in comparison to 496.7kt from a year ago. Finally, soybean shipments stood at 244.4kt, lower than the 626.3kt reported a week ago.
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USDA Forecasts Decline in Soybean Acreage, Rise in Corn Plantings

ING Economics ING Economics 03.07.2023 09:17
Agriculture–USDA sees soybean acreage falling In its latest Prospective Plantings report, the USDA estimates soybean plantings will drop significantly while corn acreage will rise this year. The agency projects 2023 soybean acreage at 83.5m acres, significantly lower than the March estimate of 87.5m acres and the market expectation of 87.7m acres. The US planted 87.5m acres of soybeans in 2022. In contrast, the USDA projects 2023 corn plantings to reach 94.1m acres (the highest since 2013), which is higher than the March estimate of 92m acres and the 88.6m acres planted in 2022. The market was expecting a number closer to 91.9m acres. Wheat planting estimates were trimmed to 49.6m acres, which was in line with expectations, and down from the 49.9m acres projected in March but higher than the 45.7m acres planted in 2022. CBOT futures were quick to react to the unexpected numbers with CBOT soybeans settling more than 6% higher on Friday, whilst CBOT corn settled more than 6% down on the day. The USDA also released its quarterly stocks report (as of 1 June) last week, which showed a drop in US grain inventories. The agency reported corn inventories at 4.11bn bushels, down 6% YoY and lower than the market expectation of around 4.25bn bushels. For soybeans, the agency reported inventories of 796m bushels, down 18% YoY and below market expectations of around 805m bushels. Similarly, wheat inventories were reported at 580m bushels, down 17% YoY and lower than the 613m bushels the market was expecting. The latest CFTC data shows that money managers reduced their net bearish bets in CBOT wheat by 31,966 lots to 52,168 lots as of 27 June, the lowest in seven months. The move was predominantly driven by a 33,030 lot reduction in the gross short position. Speculators cut their net long position in CBOT corn by 5,454 lots to 52,845 lots over the last reporting week. Meanwhile, speculators increased their net long in CBOT soybeans by 22,530 lots to 99,480 lots as of last Tuesday. Given the price action last Friday, it is likely the next positioning report will show a further boost in the soybean net long and a further reduction in the corn net long.
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Hungary's Economic Outlook: Navigating a Technical Recession and Disinflationary Pressures

ING Economics ING Economics 06.07.2023 13:36
Hungary: Technical recession set to end soon Economic activity has slowed significantly in all sectors except for one. Base effects and favourable weather conditions have boosted the positive contribution from agriculture which could lift Hungary out of technical recession in the second quarter of 2023. In the meantime, we still won’t have too much to cheer about. A lack of domestic demand is weighing on retail sales, construction and industrial output, with the latter currently being supported mainly by export sales. We see GDP growth of just 0.2% in 2023. The only silver lining coming from the weak economy is that the pricing power of companies is rapidly diminishing, thus the disinflationary process has shifted into a higher gear. We see single-digit inflation in November 2023 with the full-year average being around 18%. Disinflation with preserved market stability helps the central bank’s agenda: the ongoing normalisation of monetary policy. We see 100bp of further cuts to the effective rate before it reaches the base rate at the September meeting. After that, we see the National Bank of Hungary remaining cautious. Weakening economic activity is hitting import demand which, combined with lower energy prices, is helping the country’s external balances improve. We expect the current account deficit to narrow to around -2.2% of GDP this year with positive risks. However, the marked drop in consumption is putting significant pressure on the budget’s VAT revenue stream, and key challenges loom. With structural improvements in all other aspects though, we do not expect any sovereign credit rating changes from rating agencies in the near future. We expect EUR/HUF to oscillate in the current range of 368–378, depending on the National Bank of Hungary's communication regarding the rate-cutting cycle and on progress with the EU. Regarding the latter, our base case remains an agreement and partial access to the Cohesion Fund before the year ends. Hungarian Government Bonds can benefit the most from monetary policy normalisation, further supported by government measures and debt agency funding control (for more details, check out our Monitoring Hungary).  
Hungary's Industrial Production Outlook Negative, Agriculture May Be Key to Economic Growth in 2023; Retail Sales Downtrend Continues

Hungary's Industrial Production Outlook Negative, Agriculture May Be Key to Economic Growth in 2023; Retail Sales Downtrend Continues

ING Economics ING Economics 06.07.2023 15:37
Despite today’s positive surprise, we still expect industrial production to be negative for the year as a whole. Therefore, we believe that agriculture could remain the sole saviour of economic growth in 2023, as the latest industry data do not seem to indicate a turnaround in domestic demand. On a monthly basis, the volume of retail sales has been falling steadily since the end of last year, with March being the exception. The latest data from May confirm the downtrend as volume in retail shops fell by 0.8% MoM, adjusted for seasonal and calendar effects. The monthly drop reveals the fact that the pleasing improvement regarding the annualised index (-12.3%) is mainly due to base effects. Thus, there is little reason for joy as short-term dynamics do not point to a rebound in sales volume. Looking at the breakdown, only food sales performed relatively well in May, as sales increased by 0.1% MoM. From a trend perspective, however, this is not particularly good news, as it is only the third time in the last 12 months that food sales have risen, two of which were just 0.1% increases. Nevertheless, with annualised food inflation still at a very high level of 33.5%, it is understandable that households are still cutting back on food spending. Given that real wages have been falling steadily for eight months, we do not expect to see a significant recovery in food retailing in the second quarter, despite the easing of food price pressures.   Breakdown of retail sales (% YoY, wda)
Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

Bearish WASDE Report Impacting Corn, Soybeans, and Wheat

ING Economics ING Economics 13.07.2023 08:41
Agriculture: Bearish WASDE report The USDA’s latest WASDE report was a largely bearish affair, particularly for corn and soybeans. The USDA revised up its US corn production estimate by 55m bushels to 15.32bn bushels, on the back of a larger than expected planted area as reported in its recent acreage report. A reduction in yield estimates (due to recent dry weather) was not enough to offset the higher acreage. The market was expecting a larger fall in yields, therefore the USDA’s production estimate was above the 15.15b bushels the market was expecting. Higher output sees US ending stock estimates for 2023/24 at 2,262m bushels, up slightly from the previous forecast and above the 2,166m bushels the market was expecting. For the global balance, corn production for 2023/24 is forecast to increase by 1.7mt to 1,224.5mt, as output increases from Canada (+0.7mt) and Ukraine (+0.5mt) partially offset by reductions from the EU (-0.9mt). 2023/24 global ending stocks for corn were left largely unchanged at 314.1mt, although this was above the little more than 312mt the market was expecting. The USDA lowered 2023/24 US soybean output estimates by 210m bushels to 4,300m bushels due to lower acreage. The market was expecting further downside to soybean output, however, the agency left yields unchanged from last month. US 2023/24 ending stock estimates were reduced from 350m bushels to 300m bushels, which was still well above the roughly 206m bushels the market was expecting. For the global market, 2023/24 soybean production estimates were lowered by 5.4mt to 405.3mt, which leaves ending stocks for 2023/24 at just under 121mt.   Lastly, the USDA projects US wheat supplies to increase by 74m bushels to 1,739m bushels. This pushes US ending stock estimates up by 30m bushels to 592m bushels, which is above the roughly 565m bushels the market was expecting. For the global wheat market, the USDA expects 2023/24 wheat production to fall to 796.7mt this season, down from an earlier estimate of 800.2mt. As a result, ending stocks for 2023/24 were lowered by 4.2mt to 266.5mt, which is less than the market was expecting.
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Agriculture Market Update: Wheat Continues Decline Amid Global Supply Concerns

ING Economics ING Economics 31.07.2023 15:54
Agriculture: Wheat extends decline CBOT wheat futures extended the fall for a fourth consecutive session this morning as worries surrounding the Black Sea dilemma were overshadowed by the prospects of increasing supplies from other major producing nations. Recent reports from the last week’s US crop tour showed that the estimates of the spring wheat yield were higher than the USDA’s latest estimate, whilst France’s soft wheat production is also expected to remain higher than last year. Meanwhile, Russia is expected to increase its overseas shipments of grains to as much as 60mt in the new season. In its latest report, the European Commission projects that the EU’s soft wheat harvest will reach 126.4mt this year, down from 128.9mt estimated in June. The group also trimmed the corn crop projections to 63mt, compared to the earlier estimate of 63.7mt whereas the export estimates were kept unchanged at 32mt. The latest CFTC data shows that money managers turned net bullish in CBOT corn as gross longs outnumbered gross shorts by 26,603 lots as of 25 July, compared to the net bearish bets of 46,926 lots from a week ago. Looking at wheat, the net speculative short positions decreased by 14,086 lots to 40,332 lots over the last reporting week. The move was driven by a drop in gross shorts by 13,674 lots taking the total to 98,192 lots. Meanwhile, speculators increased their net bullish bets for soybean by 24,925 lots for a second consecutive week to 120,739 lots fuelled by an increase in gross longs. For sugar, money managers increased their net bullish positions by 31,980 lots to 178,530 lots. The gross long position in sugar increased by 29,183 lots compared to last week taking the total to 229,126 lots.
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Hungary's Economy: Disinflation and Technical Recession Impacting Growth Prospects

ING Economics ING Economics 31.07.2023 15:57
Monitoring Hungary: Disinflation shifts into a higher gear In our latest update, we reassess our economic and market forecasts for Hungary, as we expect disinflation to shift into a higher gear due to a marked collapse in domestic demand. In contrast, we see the technical recession ending in the second quarter, while the monetary normalisation will continue unabated if market stability prevails.   Hungary: at a glance Economic activity has slowed significantly in all sectors, except one. The positive contribution of agriculture will lift the economy out of the technical recession in the second quarter of 2023. However, unsurprisingly, the lack of domestic demand is weighing on both retail sales and industrial output, with the latter currently being supported only by export sales. Real wage growth has been negative for nine months, but we expect to see a turnaround as early as September, as the disinflationary process picks up speed. Weakening economic activity lowers import demand, which combined with lower energy prices is helping the country’s external balances to improve faster than expected. The rapid deterioration in the pricing power of businesses has contributed to the strengthening disinflationary process, which we expect to markedly accelerate, especially in food items. The normalisation cycle of monetary policy should continue unabated in 100bp steps until the September merger. Beyond that, we expect a pause and then further 100bp cuts. Currently we see a 0.5-1.0% of GDP slippage in this year’s budget, but a revision by the Ministry of Finance will only come in September. We still believe in a turnaround in forint due to FX carry and support by the improving current account and a better gas price story. We see the market underestimating further normalisation in the next year or two, opening the door for more curve steepening.     Technical recession will end in the second quarter, but no change to full-year outlook Hungary has been in a technical recession for three quarters (3Q22-1Q23) as sky-high inflation has stifled economic activity. Consumption has slowed markedly, and investments have come to a standstill due to high interest rates and fiscal savings. While most sectors continue to struggle with weak domestic demand, agriculture stands out. This is due to a combination of base effects and favourable weather conditions. In our view, these factors will lead to a significant positive contribution from agriculture to overall growth, lifting the economy out of the technical recession in the second quarter. As we expect domestic demand to remain subdued for the rest of the year, we believe that agriculture could be the only silver lining for growth prospects this year. However, we maintain our full-year GDP growth forecast of 0.2% as we await the official second-quarter data.   Real GDP (% YoY) and contributions (ppt)     Industrial performance hinges on export activity Industrial production surprised on the upside in May, as production volumes rose by 1.6% month-on-month but fell by 4.6% year-on-year. At a sectoral level, the picture remains unchanged, with volumes expanding only in the electrical equipment and transport equipment sub-sectors (e.g. electrical vehicle batteries and cars). We believe this trend underlines our view that only those sub-sectors that are linked to the automotive sector, and thus largely dependent on export sales, are performing well. Nevertheless, the heavy reliance on export sales is understandable in the context of subdued domestic demand. However, with global leading indicators suggesting that recessionary forces are building globally, this could weaken export prospects and thus delay the turnaround in overall output growth in industry until next year.   Industrial production (IP) and Purchasing Managers' Index (PMI)   Retail sales continue to plunge as real wages deteriorate The retail sector continues to suffer from the cost-of-living crisis, as the volume of sales in May fell by 12.3% YoY, adjusted for calendar effects. Short-term dynamics further cloud the picture, as retail sales volume fell by 0.8% MoM, with no recovery in sight. At the component level, food retailing was virtually flat, while non-food retailing fell slightly on a monthly basis. However, the lack of domestic demand is most evident in the case of fuel, as the volume of fuel retailing fell despite lowering fuel prices. In our view, this phenomenon underlines our view that the deterioration in household purchasing power is having a significant negative impact on retail sales. In this respect, we expect this downward trend to continue at least until real wage growth turns positive, which we expect to happen as early as September.   Retail sales (RS) and consumer confidence   We expect a turnaround in real wages as early as September Average wage growth remained strong in May, rising by 17.9% YoY on the back of higher bonus payments. However, after adjusting for inflation, real wages fell by 3% YoY, extending the streak of negative real wage growth to nine months. The good news is that we expect real wage growth to return to positive territory as early as September, in line with the strengthening of the disinflation process. As for other labour metrics, the three-month unemployment rate remained at 3.9% in the April-June period, showing that the cost-of-living crisis is encouraging people to work. In addition, strong demand for seasonal workers pushed the participation rate to a record high in June. In this regard, even if the seasonal effects fade, we expect the unemployment rate to peak in the vicinity of 4%, as the labour market faces structural shortage problems.   Growth of real wages in Hungary (% YoY)   Import pressure eased by subdued domestic demand The combination of high inflation and high interest rates is weighing heavily on domestic demand, reducing the need for imports. In addition, as the energy issue appears to be easing this year, the pressure on the trade balance from the import side is easing significantly. Conversely, the export side has huge growth potential due to new EV battery plants, while carmakers are still dealing with backlogs. Taking all these factors into account, the staggering €1.1bn trade balance surplus in May hardly comes as a surprise. In our view, high-frequency data point to a balanced current account (CA) at the end of the year. However, a looming recession in the eurozone, coupled with a weaker-than-expected economic rebound in China, could significantly weaken the export outlook, and thus may limit the upside to the CA.   Trade balance (3-month moving average)    
Gold Prices Show Signs of Recovery, Key Levels to Watch

Domestic Demand Collapse Spurs Disinflation Surge: Hungary Economic Update

ING Economics ING Economics 31.07.2023 15:59
The collapse in domestic demand strengthens disinflation Headline inflation eased to 20.1% YoY in June, mainly driven by the 0.4% MoM decline in food prices. Within this, the fall in processed food prices was the main driver, hence the sharp 2ppt deceleration in core inflation to 20.8% YoY. In our view, the rapid deterioration in firms' pricing power is evident, and will only accelerate going forward as competition among retail outlets for households' overall shrinking disposable income intensifies. Based on our high-frequency data collection, we expect disinflation to strengthen further going forward, driven mainly by food deflation. In this context, we expect average inflation to fall to single digits in the fourth quarter, while average inflation for the year as a whole is likely to be below, but close to 18%.    Inflation and policy rate   Rate cuts to continue in 100bp steps if market stability prevails At the July meeting, monetary policy normalisation continued as the National Bank of Hungary (NBH) lowered the effective interest rate by a further 100bp to 15%. The central bank emphasised cautiousness, graduality and predictability, so we expect same-sized cuts into the September merger of base and effective rates. After September, however, the NBH has several options to alter the interest rate complex. The central bank can either continue the easing cycle unabated in 100bp increments, setting the policy rate at 10% at the end of 2023. However, reducing the pace of cuts to 50bp seems to be another viable option, leaving the key rate at 11.5%. In our view, the NBH will cut both repo and deposit rates by 100bp in October, leaving room for market rates to adjust lower, but will only cut the base rate by 100bp in November and December. We, therefore, expect the policy rate to end the year at 11%.   Real rates (%)   VAT receipts hit hard by fall in domestic demand The Hungarian budget posted a deficit of HUF 132.7bn in June, bringing the year-to-date cash flow-based shortfall to 85% of the full-year target. The decline in domestic demand is weighing heavily on tax revenues. In this respect, VAT receipts in the first half of 2023 were only 2.2% higher than a year ago compared to the 24% average inflation during this period. Despite some ongoing adjustments (e.g. public investment cuts), we still see a slippage of 0.5-1% of GDP in this year's budget. A recent interview with the Finance Minister revealed that a revision could come as early as September, which in our view could lead to additional adjustments plus a minor increase in the 2023 EDP deficit target. From a cash-flow perspective, the fate of the EU funds remains a key issue, with the clock ticking (90 days) at the European Commission's table, as the government officially submitted the self-review on horizontal enabler (judiciary) reforms on 18 July.   Budget performance (year-to-date, HUFbn)   We still believe in a HUF turnaround Although we heard what we thought we would from the National Bank of Hungary – a cautious cut with a commitment to remain patient – market players were ignorant of the hawkish message. The NBH’s assurance that the cutting cycle will not be accelerated did not result in a turnaround in EUR/HUF as we expected. However, our market view remains unchanged. In case of further forint weakening, we expect the central bank to hit the wire and repeat some hawkish statements, trying to push against HUF underperformance versus Central and Eastern European peers. Moreover, we see some improvement in conditions at the global level, too. Last but not least, despite the whole EU fund issue being overly politicised, we still believe in a positive outcome before the year-end. Our ultimate argument would be that European politicians don’t want to bother with Hungarian issues when European Parliament elections are approaching (June 2024). On a local level, we think FX carry should continue to be the main positive driver for the HUF, supported by an improving current account, a record decline in gas prices, and despite cuts by a cautious central bank, overall pushing EUR/HUF closer to 370.   CEE FX performance vs EUR (30 December 2022 = 100%)   We continue to see further curve steepening In the rates space, we found the IRS curve a bit steeper again after the last NBH meeting and a steeper and lower curve remains our main view for the coming months. 2s10s spread has moved roughly 100bp since May, the first rate cut, and we still see room for further normalisation of the IRS curve, which remains by far the most inverted in the CEE universe. Market expectations for this year are more or less fair given that the September rate merge is a broad market consensus, however, NBH's next steps are unclear to the market, and we see the market underestimating further normalisation in the next year or two, opening the door for more curve steepening. On the other hand, the fall in core rates will slow the normalisation of the curve compared to previous months.   Hungarian sovereign yield curve   Hungarian government bonds (HGBs) eased in July and the rest of the region caught up with the swift rally. We therefore see current valuations of HGBs as more justifiable, which could attract new buyers. Despite the fiscal slippage risk, year-to-date issuance has reached 60% by our calculations, which we see as more than sufficient. Moreover, recent government measures supporting HGBs and the fastest disinflation in the region should be enough to sustain demand.
Hungary's Budget Deficit Grows, Raising Concerns Over Fiscal Targets

Italian GDP Contracts in Q2, Posing Disinflation Challenges

ING Economics ING Economics 31.07.2023 16:02
Weaker than expected Italian GDP may help disinflation process The surprising contraction in GDP in the second quarter was driven by domestic demand. This could well have affected services, as July inflation data shows. Based on business confidence and labour market data, we believe that another contraction in GDP should be avoided in the third quarter.   After posting a surprisingly strong 0.6% quarterly expansion in the first quarter, Italian GDP contracted by 0.3% in the second, doing worse than expected. The succinct press release by Istat indicates that the quarterly decline was driven by domestic demand (gross of inventories), while net exports were growth neutral. From the supply side, Istat notes that value added contracted in both industry and agriculture and expanded marginally in services. We anticipated that the very positive first quarter would be difficult to replicate in the second, but thought that resilience in services could manage to marginally compensate for the contraction in industry. Apparently, this was not the case. On the demand front, we suspect that soft private investment and inventories might have been at the heart of the negative surprise, while private consumption could have managed to remain in positive territory courtesy of a still resilient labour market and decelerating inflation. After the preliminary estimate for the second quarter, the statistical carryover for full-year GDP growth stands at 0.8%. Our base case forecast for average GDP growth is currently 1.2%, but today’s disappointing release adds downside risks. Still, we believe that a technical recession could still be avoided in 3Q23. July business confidence data were a mixed bag, with another decline in manufacturing and improvements in services (tourism and transport) and construction (specialised works). We believe such a pattern is still compatible with a return to modest positive growth in the third quarter. The weakening economy possibly helped to cool inflation in July. Preliminary inflation data, also released today, confirms that the disinflationary path is still in place, both for the headline and core measures. Headline inflation was down to 6% (from 6.4% in June), mostly driven by the deceleration in transport services and non-regulated energy goods. The deceleration of core inflation to 5.2% (from 5.6% in June) is a comforting factor on its own, helped by a decline in services, but a similar rate of decline over the second half of the year cannot be taken for granted. Indeed, the recent acceleration in hourly wages (at 3.1% in June from 2.4% in May) will filter through the price pipeline, possibly showing up in services inflation over the next few months. Today’s inflation release still fits with our current projected profile, which points to an average headline reading of 6.5% for 2023.
China's Deflationary Descent: Implications for Global Markets

Escalating Ukraine-Russia Tensions Drive Wheat Gains: Market Insights

ING Economics ING Economics 07.08.2023 14:03
Agriculture – Wheat gains on escalating Ukraine-Russia tensions CBOT wheat futures edged higher with the most active contract rising more than 2% this morning due to increasing tensions in the Black Sea region following the Ukrainian attack on Russian ships. According to recent updates about the Ukraine and Russia conflict, Ukrainian drone strikes near the Black Sea port of Novorossiysk, a key hub for Russian grain and oil shipments, led to the closure of the port for several hours. The move was in retaliation for the numerous attacks by Russia on Ukrainian ports. Meanwhile, the latest reports from the Ukrainian Agriculture Ministry showed that the nation's grain shipments rose 29% YoY to 2.4mt as of 4 August. The exports included around 1.2mt of corn (- 3.7% YoY), whilst wheat shipments surged twofold against last year and stood at 880kt. The French agriculture ministry's initial estimates for the season show that the nation's corn harvest for the year is expected to rise to 11.2mt, compared to 10.9mt a year ago. Meanwhile, soft-wheat crop output is now seen slightly higher at 35.6mt, compared to the July estimate of 35mt. Despite the drop in planting, the improvement in harvest projections reflects the better yield after the drought-stricken 2022 which damaged crops. In its latest report, the European Commission reported the EU’s soft wheat exports for the ongoing season at 2.35mt this year as of 30 July, down from 2.7mt reported in a similar period a year ago. The major destinations for these shipments were Morocco, Algeria, and South Africa. The commission added that the nation's corn imports in a similar period stood at 1.17mt, down 28% compared to a year ago. The latest CFTC data show that money managers reduced their net bullish bets in CBOT corn by 9,862 lots to 16,741 lots as of 1 August. The fall was led by an increase in gross shorts by 25,065 lots, taking the total to 168,281 lots. Similarly, speculators decreased their net bullish bets in soybean by 26,246 lots to 94,493 lots. The move was fueled by a drop in gross longs by 22,583 lots, taking the total gross longs to 123,815 lots. Meanwhile, the net speculative short positions in CBOT wheat rose by 10,096 lots to 50,428 lots over the last reporting week following an increase in gross shorts.
EUR/USD Rangebound Ahead of Data Releases and Rate Expectations

Positive Shift: US Crop Ratings Show Improvement in Agriculture Sector

ING Economics ING Economics 08.08.2023 10:54
Agriculture: US crop ratings start to improve The USDA’s latest weekly crop progress report rated 57% of the corn crop to be in a good-to-excellent condition as of 6 August, compared to 55% last week and 58% reported last year; the market was expecting 56% of the crop to be rated in good-to-excellent condition. As for soybeans, the agency rated 54% of the crop as good-to-excellent, higher than 52% from a week ago. However, that's lower than the 59% reported a year ago. It was in line with the average market expectations of 54%. For wheat, the USDA data showed that 87% of the winter wheat crop was harvested as of 6 August, compared to 80% from a week ago and 85% at the same stage last season. The market was expecting the harvest to reach 88%. Trade data from the Chinese Customs released this morning show that China’s soybean imports rose 23.4% YoY to 9.7mt in July as domestic crushers ramped up the purchases to take advantage of higher supplies by Brazil. Cumulative imports rose 15% YoY to 62.3mt over the first seven months of the year. The USDA’s weekly export inspection data for the week ending 03 August shows weakening demand for US grains. The USDA’s export inspections of corn stood at 377kt in the above-mentioned period, lower from 538kt in the previous week and 556kt reported a year ago. Similarly, US soybean export inspections stood at 282kt, lower compared to 334kt from a week ago and 871kt from a year ago. For wheat, US export inspections fell to 275kt, compared to 585kt from a week ago and 636kt reported a year ago.
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Hungary's Longest Technical Recession: Examining GDP Contractions and Economic Challenges Amid the Cost of Living Crisis

ING Economics ING Economics 16.08.2023 13:56
Longest technical recession on record in Hungary Contrary to expectations, Hungary posted a quarterly drop in GDP in the second quarter of 2023. The latest data extends the longest technical recession streak on record. We now see a rising chance of a full-year contraction in GDP growth.   Economy suffers longer from current Cost of Living Crisis than Great Financial Crisis The Hungarian economy has been in a technical recession since the third quarter of 2022, as sky-high inflation stifles economic activity. The latest GDP figures for the second quarter published by the Hungarian Central Statistical Office (HCSO) confirm that the technical recession has continued. This means that economic output has now contracted for four consecutive quarters, the longest streak of technical recession since at least 1995 when the current GDP calculation system was introduced.   Comparison of technical recessions in Hungary   To put things in perspective, even during the Great Financial Crisis (GFC) of 2008-2009, three quarters of contraction were followed by one quarter of stagnation. This time around, the HCSO reports that the volume of GDP contracted by 0.3% Q-on-Q in the second quarter of 2023, contrary to widely expected growth. This makes the current cost of living crisis the longest technical recession on record. Nevertheless, the current recession is nowhere near as deep as the GFC. In addition, the first quarter QoQ figure was revised downwards from -0.3% to -0.4%. As a result of the negative momentum and downward revisions, the Year-on-Year economic performance was well below expectations, with GDP contracting by 2.4% in Q2. What's even more disappointing is that, judging by the upward revisions for Q2 GDP growth over the past few years, the seasonal factor was better than expected. This implies that the current 2023 second quarter GDP data was the result of an improving seasonal factor and a worse-than-expected trend growth.   What's happened to agriculture? As this was a preliminary release by the HCSO, we don't have detailed data yet and we'll be making a fulling assessment when we get those numbers on 1 September. However,  industry and market services were the largest contributors to the decrease in economic performance, according to a press release from the Statistical Office. As for industry, this is hardly surprising given that industrial production volume was down by 6% in the second quarter, adjusted for calendar effects. As for services, we have seen that the sector has managed to perform well in recent quarters, posting growing activity in the first quarter despite sky-high inflation. In the second quarter, reality seems to have caught up with this sector as well. The health sector was highlighted as the silver lining, meaning that the restructuring of the healthcare system and the rise of the private healthcare sector continue to support growth. On the other hand, the HCSO barely registered a positive performance, as the statement only highlights that the “good” performance of agriculture reduced the decline in GDP. This means that the hopes attached to strong agricultural activity did not really materialise in the end, because there are better words to use than just 'good'.    Hungarian GDP growth   With GDP volume falling by 1.7% in the first half of 2023, the government’s full-year growth forecast of 1.5% seems utterly unrealistic given the year-to-date performance and still negative real wage growth. However, judging by the latest press release from the Ministry of Economic Development, issued shortly after the dismal growth data, the aim seems to be to avoid a full-year recession rather than to fight for the 1.5% GDP growth. In our view, this is a very important and positive message, especially from a fiscal perspective, as it limits the risk of newly announced stimulus measures in order to support the unattainable 1.5% economic activity Speaking of measures, the 14 steps announced in this press release to strengthen the economy do not impose any additional burden on the budget, as all these measures had already been announced and these are in progress.   We're considering downgrading Hungary's full-year GDP outlook Regarding our full-year growth forecast for 2023, we will make our new assessment after 1 September when the detailed GDP data will be published. Before seeing the second quarter figure, our pre-publication forecast for full-year growth in 2023 was around 0.2–0.4%, but we now see a significant chance that the Hungarian economy will not be able to grow in 2023. This is even though the economy will most likely perform better in the second half of the year. However, the hole dug in the year's first half looks too deep to climb out of quickly.
DCF Valuation with Assumptions: Risk-Free Rate, Market Premium, Beta, and Growth Rate

SecoWarwick: Capitalizing on Electromobility, ESG, and RES Trends - Investment Opportunity Analysis

GPW’s Analytical Coverage Support Programme 3.0 GPW’s Analytical Coverage Support Programme 3.0 16.08.2023 14:03
Good exposure to electromobility, ESG and RES We are initiating our coverage of SecoWarwick with a Buy recommendation and target price of PLN 33.3. SecoWarwick is a beneficiary of exposure to capital goods for the transforming automotive industry (electro mobility), growing investment in renewables (especially in wind, gas, nuclear and hydrogen power), deglobalization and the relocation of sub-supplier production to Europe and the US (onshoring), and trends towards greater efficiency and the concept of a circular economy (increasing investment in equipment with lower environmental impact). SecoWarwick’s solutions can be used for NG-DRI plants (in the transformation of the steel industry), aluminum recycling plants (melting much cheaper than electrolysis, the growing role of ESG) and customers, when choosing SecoWarwick equipment, are driven by savings on the production process side (reduced gas emissions, lower consumption of energy raw materials). The opportunity for the next few years for SecoWarwick is a strong position (TOP1) in CAB lines for aluminum processing, especially battery brazing with cooling systems. According to McKinsey, global production of battery cells will nearly quadruple and, given its global presence, SecoWarwick will be a beneficiary of this trend (presence in Europe, China and the US). The company, with a record order book of PLN 560mn, has an opportunity to improve sales growth and financial performance in 2023, which, with low debt, may increase the chances of an increased dividend stream for shareholders     Risk factors 1. High sensitivity of results to business cycles. Historically, SecoWarwick's sales and results have been highly dependent on business cycles (capital goods market). A pronounced downturn could lead to a drastic decline in sales revenues and consequently financial results (see 2009).     2. Strengthening of PLN against USD. The strengthening of the zloty against foreign currencies is one of the biggest challenges for SecoWarwick from the point of view of competitiveness and the profitability of the contracts executed. The plants in Poland are most exposed to currency risk (Europe ~30% of sales; 30% of sales in EUR, 20% in USD). The company hedges 60% of the net contract exposure at the time of contract conclusion. Companies in the US contract in USD and those in China mainly in CNY.     3. High exposure to China. Currently, more than 30% of the group's sales are realized in Asia (primarily China). In contrast, China accounted for 55% of the group's realized EBIT in 2022. A possible drastic economic slowdown in China, the US-China trade wars, and a war over Taiwan could negatively affect the economic situation in China and indirectly the performance of the company there.   4. Increase in personnel costs and access to highly qualified staff. After material and energy costs, personnel costs are the second-largest category, accounting for 22% of total costs in 2022. SecoWarwick's workforce is primarily skilled engineers (over 60%), who are often attracted by competing companies. The group must keep an eye on salaries at a competitive level to avoid migration of talent out of the group. SecoWarwick is opening offices in locations where access to staff is better, e.g. an office in Zielona Góra, in Tarnowskie Góry, near Poznań.   5. Exposure to defense industry. SecoWarwick also has exposure to the defense industry (aircraft, helicopters, military drones) as a result of significant sales to the aerospace industry (approx. 1/3 of sales). In our view, exposure to the defense industry does not exceed 10% of total revenues. Some investors may statutorily exclude investments in companies with exposure to the defense industry, which may narrow the pool of potential investors (on the other hand, it is one of the factors for revenue growth).   6. Risk of trade barriers. The technological sophistication of SecoWarwick's products may result in part of the product range being subject to sanctions in the future, as was the case in Russia. The company has an outstanding deposit of EUR 252,000 relating to a contract that cannot be completed due to the sanctions in place (to date, a significant - more than 80% - part of the contract has been completed, all existing receivables have been paid by the counterparty). Also currently, trade barriers between China and India mean that SecoWarwick in China cannot supply products to India. The group plans to return to India in the future by building a branch there (there is already a sales & service division there).     Valuation We base our valuation of the SecoWarwick group on a 50% discounted cash flow method and a 50% comparative valuation.     In the comparative valuation, we seek to benchmark SecoWarwick's performance against industrial capital goods producers. We include a 20% discount in the valuation due to the fact that the comparators are clearly larger in terms of business scale and many have greater sales diversification.          
EUR/USD Faces Resistance at 1.0774 Amid Inflation and Stagflation Concerns

Positive Crop Tour Results Boost Agriculture Outlook, Uganda Coffee Exports Rise

ING Economics ING Economics 23.08.2023 10:02
Agriculture – Crop tour sees higher yields Reports from the Pro Farmer Midwest crop tour for corn and soybean look promising. The tour reported South Dakota corn yields to be around 157.4bu/acre this year (based on 91 samples), much higher than the 118.45bu/acre from a year ago and the 3-year average of 149.71bu/acre. As for the soybean crop, the pod count average in South Dakota is seen at 1,013, higher than 871.4 pods from last year but slightly below the three-year average of 1,039.71 pods. Meanwhile, reports from Ohio estimate corn yields at 183.94 bu/acre (based on 118 field samples), compared to 174.17 bu/acre a year ago and the 3-year average of 175.64 bu/acre. Soybean pods in Ohio were seen averaging 1,252.93, above the 1,131 pods reported last year and the 3-year average of 1,161 pods. The latest data from the Uganda Coffee Development Authority shows that Uganda’s coffee exports rose 14.5% MoM and 12% YoY to 645,832 bags (60kgs bag) in July. Last month’s shipments were the highest monthly total in over a year due to the attractive global prices and a good crop in the southwestern region. Weekly data from the European Commission shows that soft wheat exports for the season so far fell 21% YoY to reach 4.06mt as of 20 August, down from 5.12mt for the same period last year. Meanwhile, EU corn imports stand at 2.12mt, down 35% from a similar period a year ago. The EU is expected to see a recovery in its domestic corn output this season, which should reduce its import needs.
Hungary's Economic Prospects: Emerging from a Prolonged Recession

Hungary's Economic Prospects: Emerging from a Prolonged Recession

ING Economics ING Economics 01.09.2023 09:53
Hungary: The worst may be over We had high hopes going into the release of second-quarter GDP, and we were sorely disappointed. Hungary has been in a technical recession for four quarters, a new record in modern times. The silver lining remains agriculture, which we expect to pull the country out of the doldrums with a strong performance in the second half of the year. But it won't be enough to keep the economy out of a full-year recession. We now expect real GDP to contract by 0.5% in 2023, possibly the only country in CEE to record a down year. Shrinking domestic demand (the main driver of the negative momentum) has a positive side effect: the trade balance has been in surplus for five months, while the current account posted a surplus in the second quarter based on preliminary figures. Against this background, we have significantly raised our external balance forecast and now see the current account in surplus by 0.3% of GDP in 2023. If disinflation continues as expected on the back of weak domestic demand, we see headline inflation below 7% and single-digit core inflation by the end of the year. In this context, the National Bank of Hungary will soon succeed in creating a positive real interest rate environment, especially after the latest signal from policymakers, which warned against excessive rate cut expectations based on market pricing. This hawkish stance could translate into a higher-than-expected interest rate path, at least in the coming months. As a result, we see upside risks to our year-end policy rate forecast of 11%. Hungary's fiscal situation remains challenging, as evidenced by budgetary developments in the first seven months of the year. So, it is hardly surprising that the finance minister has openly talked about the possibility of a budget revision in September. While it is not clear what a revision could mean in practice, we think it would be a combination of an upwardly revised deficit goal to 4.4% of GDP, accompanied by some additional budgetary measures to achieve the new target. We don't see any problems here from a debt financing perspective, as the additional supply will be raised through FX debt issuance.  
Hungarian Industrial Production Shows Surprise Uptick in Summer

Hungarian Industrial Production Shows Surprise Uptick in Summer

ING Economics ING Economics 08.09.2023 12:05
Hungarian industry shows summer upturn Industrial production has often been heavily volatile during the summer months in Hungary. This year was no different as we saw a surprise uptick in industrial production in July. However, we need more evidence to see this as a true turning point.   Hungarian industry delivered a significant positive surprise in July, with output volume rising by 2.8% month-on-month (MoM) adjusted for seasonal and calendar effects. As a result, the yearly change in output showed a significant improvement from June, coming in at -2.5% (adjusted for calendar effects). Given that survey-based soft indicators (Manufacturing PMI, different confidence indices of industry) have been predicting a further contraction in industrial production in recent months, we look forward to a detailed assessment by the Statistical Office of the reasons for the positive surprise. For the time being, it is safe to say that these soft indicators continue to fail to capture shorter-term fluctuations in the sector's performance.   Manufacturing PMI and industrial production trends   While we await the detailed data, the preliminary release suggests that there is nothing new to see here. There was no significant change in the structure of industrial production. While most sub-sectors contributed to the decline in output, the exceptions remain the manufacture of electrical equipment (EV batteries) and car manufacturing. The only question that remains is whether the export-oriented sectors have been able to recover much better from the possible first summer shutdowns, or whether the other sectors have already experienced some sort of early recovery. Knowing that the performance of industry during the summer seasons has been extremely volatile recently with a lot of variation in the summer shutdown periods, it is really hard to say whether the July upturn is real or just a false hope generated by unreliable seasonal adjustmen   Performance of Hungarian industry   For the time being, we need more evidence to believe that the July surprise is a positive turning point. All the more so because we haven't yet seen any significant positive changes in other segments of the Hungarian economy that would support the theory of improving domestic demand and industrial production in sectors linked to the domestic market. Looking ahead, we expect this dichotomy between external and domestic demand to persist in the short term, making industrial performance a tale of two halves. Export-oriented sectors can boost industrial production in the short term through capacity-enhancing investment. The latest Eurostat survey shows that manufacturers expect capacity utilisation to improve somewhat in the third quarter, from 75.7% to 76%. However, this is still far from the peak of around 86%. This suggests that the positive impact of exports may be starting to fade as new export orders become more subdued globally and the one-off boost from capacity expansion fades.     Production level and quarterly performance of industry   On a more positive note, towards the end of the year industrial companies may be able to renegotiate their energy contracts at a much more favourable market price. This could significantly reduce their costs and lead to a resumption of production in sectors that are now underperforming due to cost-side pressures. In addition, as inflation moderates and domestic purchasing power recovers towards the end of the year, domestic industrial production could receive some positive impetus not only from the supply side but also from the demand side, offsetting the initial weakening of industrial exports. For 2023 as a whole, however, we still expect the performance of industry to be negative, i.e. below last year's total output. This also means that, barring a significant surprise from industry in the remainder of the year, agriculture will be the only sector able to meaningfully mitigate the expected decline in GDP this year.    
BOJ's Ueda: 2% Inflation Target Not Yet Achieved as USD/JPY Pushes Above 149

EU Corn Yield Projections Decline: Impact on Global Agriculture

ING Economics ING Economics 19.09.2023 13:32
Agriculture: EU lowers corn yield estimates In its monthly crop monitoring MARS report, the European Commission estimates that corn yields would drop to 7.26t/ha from a previous projection of 7.45t/ha; this is also below the five-year average of 7.48t/ha. Frequent rains in the larger parts of the northern region and dry conditions across the southern areas continue to impact crop quality and yield expectations. The latest crop progress report from the USDA shows that 51% of the US corn crop is rated in good to excellent condition, which is down from 52% seen in both the previous week and at the same stage last year. The soybean crop condition remained flat over the week, with 52% of the crop rated good to excellent. However, that's down from 55% last year. The spring wheat harvest continues to progress well, with the harvest 93% complete, up from 87% the previous week and in line with the harvest at the same stage last year. Similarly, the report shows that 9% of the corn area was harvested over the week, higher than the 5% reported in the previous week and 7% seen at the same stage last year. The latest data from the Uganda Coffee Development Authority shows that Uganda’s coffee exports rose 14.2% MoM and 48% YoY to a record high of 743,517 bags (60 kg bag) in August, following a healthy harvest in the southwest region. Coffee exports for the season rose 6% YoY to 5.6m bags through until August.
Monitoring Hungary: Assessing Economic and Market Forecasts as Decision Day Approaches

Monitoring Hungary: Assessing Economic and Market Forecasts as Decision Day Approaches

ING Economics ING Economics 02.11.2023 12:13
Monitoring Hungary: The moment of truth approaches In our latest update, we reassess our Hungarian economic and market forecasts. We think that over the coming weeks, it will become clear whether the risks to our base case scenario have materialised. We remain positive but cautious as we await the new data.   Hungary: at a glance The Hungarian government responded to the nine questions from the European Commission, and our sources indicate that the net 90-day review period has recommenced. There are just under 10 days remaining until the final decision. The technical recession probably ended in the third quarter of this year, and the next GDP figure will therefore bring a moment of truth. Nevertheless, a full-year recession cannot be avoided. Recent retail sales and industrial production data have disappointed, and the question remains whether we can expect a turnaround in the short term. Real wages will flip back to positive by September, but we doubt that the impact on consumption will be significant and we expect the labour market to remain tight. Energy price-related consequences of geopolitical risks will be a crucial factor in determining whether the current account will have a slight surplus by the year-end. Recent inflation dynamics have shown more promise than we or the market expected, giving the National Bank of Hungary (NBH) ammunition to argue for larger rate cuts. On the other hand, the biggest question remains whether the risk environment will allow the central bank to continue the rate-cutting cycle at the same pace. While the government revised the 2023 ESA-based deficit target to 5.2% of GDP, we need more evidence to assess whether the updated target can be met or not. The forint survived the first rate cut in the base rate without major damage. After some short-lived weakness and volatility, the forint should continue to strengthen. In the rates space, we can expect further steepening of the IRS curve again, while in bonds we need to see progress in the EU money story and a clearer fiscal policy picture for a significant rally.   Quarterly forecasts   Will the longest technical recession end in the third quarter? Hungary has been in a technical recession for a year now, with economic activity contracting in all sectors except agriculture in the first half of 2023. The positive contribution from agriculture in the second quarter was not enough to pull the economy out of a technical recession, as the collapse in domestic demand weighed on all sectors. This time around, we expect the technical recession to end in the third quarter on the back of the agricultural outperformance. Favourable weather conditions combined with a good harvest season support our view. 14 November will be the moment of truth – when the third quarter GDP data is due. Nonetheless, agriculture alone will prove insufficient in generating a positive balance in the entire economy this year. In our view, a 0.5% recession awaits us in 2023.   Real GDP (% YoY) and contributions (ppt)   Is the deterioration in export sales a turning point for industry? Industrial production surprised on the downside in August, as production volumes declined by 2.4% month-on-month, contributing to a sharp fall in output of 6.1% year-on-year. At a sectoral level, the picture remains unchanged from recent months, with volumes expanding only in the electrical and transport equipment sub-sectors. However, in contrast to the dynamics of recent months, this time export sales deteriorated in line with domestic sales – which may explain the large drawdown in overall output. We suspect that export sales may pick up as the dismal August figure was more the result of factory shutdowns, but subdued global demand limits the export outlook. Nevertheless, barring an ugly surprise in September, the expected industrial performance in the third quarter should be better than in the second quarter. This should help the economy to emerge from its technical recession.   Industrial production (IP) and Purchasing Manager Index (PMI)   Will the turnaround in real wages boost retail sales? The retail sector is suffering from the cost of living crisis. The volume of sales in August fell by 7.1% YoY, while on a monthly basis, the overall volume declined by 0.5%. At the component level, food and fuel sales both contracted, while non-food retailing stagnated compared to last month. These dynamics are broadly in line with those seen in previous months, but the main question now is whether the turnaround in real wages will lead to a pick-up in consumption. We suspect that the answer is no, as we believe that households will mainly deleverage and/or rebuild their savings before consumption picks up. In this regard, the 10-year low in households’ consumer confidence index supports our view. We therefore believe that the impact of the turnaround in real wages will not markedly boost consumption until 2024, leaving the rest of this year’s retail sales figures in the red.   Retail sales (RS) and consumer confidence    
BRL: Positive Outlook Amid Fiscal Focus and Successful ESG Offering

India Anticipates 8% YoY Drop in Sugar Production for 2023/24 Amid Adverse Weather Conditions

8 eightcap 8 eightcap 02.11.2023 12:34
Agriculture – India sugar production to fall 8% YoY in 2023/24 The first advance estimates from the Indian Sugar Mills Association (ISMA) show that gross sugar production (including sugar diverted for ethanol production) in India could fall to around 33.7mt in 2023/24 compared to around 36.6mt in 2022/23 as adverse weather was seen impacting yields. The total acreage under sugarcane is expected to be around 5.7m hectares in 2023/24. Sugar allocation for ethanol production was around 4.1mt for last season and a similar allocation this year would keep net sugar production at around 29.6mt. While net sugar production is sufficient to meet the domestic demand of around 27.9mt, sugar exports from the country could fall significantly in the current season. Ukraine’s Agriculture Ministry reported that the Ukrainian winter grains plantations rose to 4.2m hectares as of 31 October, in line with last year’s plantation. This includes winter wheat crop plantings rising by 6% YoY to 3.7m hectares for the above-mentioned period. Weekly data from the European Commission shows that soft wheat exports for the season so far fell 24% YoY to 9.6mt as of 27 October, down from 12.6mt reported in a similar period a year ago. The major destinations for these shipments were Morocco, Nigeria, and Algeria. Meanwhile, the nation's corn imports fell 41% YoY to 5.6mt in the season so far.
National Bank of Romania Maintains Rates, Eyes Inflation Outlook

Romanian Economy Shows Resilience: Q3 Growth Revised Upward

ING Economics ING Economics 12.12.2023 13:35
Romanian growth figures reinforce signs of resilience The release of detailed data for third-quarter GDP growth, alongside a rather hefty upward adjustment of the flash print, points to a pretty resilient growth picture in Romania. We marginally raise our full-year growth forecast from 1.5% to 1.7%, with the risk balance still tilting upwards.   As the initial 0.2% annual growth in the third quarter has now been revised to 1.1%, the overall picture of Romania's economy certainly looks brighter for the full year. The quarterly growth has also been revised from 0.4% to 0.9%. Assuming no further data revisions (a difficult assumption to make), it would now take only a meagre 0.1% quarterly expansion in the fourth quarter to reach our initial 1.5% annual growth forecast. On the supply side, our assumption that agriculture can offer a positive surprise in the third quarter materialised, as the sector added 0.8pp to the 1.1% overall annual expansion. Boosted by the strong momentum in public infrastructure investments, the construction sector added 0.4pp. Industry remains a laggard, subtracting 0.4pp and marking the fifth consecutive quarter of negative contribution to the GDP growth.   Real GDP (YoY%) and contributions (ppt) - supply side   Demand side, there was a rather large negative contribution coming from inventories (included in “others” in the chart below) which subtracted 4.8pp from the 1.1% growth rate. Otherwise, the main engine of the economy right now remains fixed investments, which contributed with 3.7pp – the highest contribution since the third quarter of 2019. Net exports have also contributed positively again by 2.1pp. This is the third consecutive quarter of positive contribution from net exports, a rather unusual situation for the Romanian economy over the last 10 years or so.     Real GDP (YoY%) and contributions (ppt) - demand side   The few pieces of high-frequency data that we got for the fourth quarter so far are pointing towards a robust expansion, with retail sales starting the quarter on a rather strong footing and confidence data marginally improving as well. For 2024, we are likely to see a rebalancing of the growth drivers from investments towards consumption, though the former should still hold on close to double-digit growth. However, with public wages likely to stay well within double-digit growth and pensions due to be increased by 13.8% starting January 2024 and approximately 22.0% starting September 2024, the private consumption story is likely to show marked improvement. The above picture could complicate the National Bank of Romania's decision-making process, as the rising demand could slow the descent of an already sticky inflation profile, with many other uncertainties on the horizon. Again, this increases the likelihood of the rate-cutting cycle starting later and/or being shorter than our current 150bp estimate
Continued Growth: Optimistic Outlook for the Polish Economy in 2024

The Commodities Digest: US Natural Gas Prices Surge, Oil Market Dynamics, and USDA's Revised Corn and Soybean Estimates

ING Economics ING Economics 16.01.2024 12:08
The Commodities Feed: US natural gas prices spike higher Spot US natural gas prices spiked higher on Friday on the back of cold weather across large parts of the US. Meanwhile, tensions in the Middle East remain elevated following US and UK airstrikes in Yemen last  Energy- US natural gas prices spike higher The oil market saw a fairly choppy trading session on Friday with ICE Brent trading within a US$2.79/bbl range. Brent briefly broke above US$80/bbl amid ongoing tension in the Middle East, specifically the Red Sea, following US and UK airstrikes against the Houthis in Yemen. However, the market was unable to hold on to these earlier gains. While geopolitical risks are certainly building, we are still not seeing a reduction in oil supply as a result of developments in the region. But, the more escalation we see in the region, the more the market will have to start pricing in a larger risk of supply disruptions.   Speculators boosted their positions in ICE Brent over the last reporting week, increasing their net long by 38,905 lots, leaving them with a net long of 208,748 lots as of last Tuesday - the largest position they have held since October. The move was predominantly driven by fresh longs with the gross long increasing by 29,942 lots over the period. Speculators also increased their net long in NYMEX WTI, with the net long increasing by 21,799 lots to 111,129 lots as of last Tuesday. For WTI, the move was largely driven by short covering, with the gross short falling by 20,138 lots. European gas storage has now broken below 80% with colder weather over the last week seeing the largest daily withdrawals from storage so far this winter. However, storage remains above the 5-year average of 68% for this time of year. For now, we are still assuming that European storage will finish this heating season at around 52% full, which suggests limited upside for European gas prices. The US natural gas market has seen increased volatility in recent days and Friday saw a significant jump in spot prices. While front-month Henry Hub futures settled almost 7% higher on Friday, spot prices jumped more than 300% to over US$13/MMBtu due to freezing weather conditions across large parts of North America. Colder weather will lead to stronger heating demand. But there are also supply risks. Freezing conditions expected in Texas could lead to disruption to natural gas infrastructure. Front-month futures have given back a lot of Friday's gains in early morning trading today. There is plenty on the energy calendar this week. On Wednesday, China will release its industrial production numbers for December, which will include output data for crude oil and refinery activity. OPEC will also release its latest monthly market report on the same day, which will include its 2024 outlook for the oil market. On Thursday, the International Energy Agency will release its latest oil market report, while China will release its second batch of trade data, which will include more detailed energy trade numbers. Also, given today is a public holiday in the US, the usual weekly inventory numbers from the API and EIA will be delayed by a day.   Agriculture – larger US corn and soybean supplies The USDA revised up its 2023/24 US corn production estimates by 108m bushels to a record 15.34bn bushels on account of rising yields. As a result, ending stocks are now projected to hit 2.2bn bushels, up 31m bushels from previous estimates. For the global balance, 2023/24 ending stock projections were revised up from 315.2mt to 325.2mt primarily due to larger supplies. Global corn production was revised up by 13.7mt to 1,235.7mt, with supply increases from the US (+2.7mt), and China (+11.8mt). For soybeans, the USDA raised its 2023/24 US production estimate from 4,129m bushels to 4,165m bushels, on the back of stronger yields. Ending stock estimates were revised up by 35m bushels to 280m bushels as a result. Given marginal adjustments in global production and usage compared to last month, ending stock projections for 2023/24 increased by just 0.4mt to 114.6mt. The USDA decreased its US wheat ending stocks estimate for 2023/24 from 659m bushels to 648m bushels following a reduction in beginning stocks. For the global wheat market, the USDA increased 2023/24 ending stock estimates from 258.2mt to 260mt, largely on account of higher stocks at the start of the year. Global wheat production estimates were increased by around 1.9mt to 784.9mt. In addition to the WASDE monthly update, the USDA also released its quarterly grains stocks report which showed that US corn and soybean stocks stood above market expectations as of 1 December 2023. US corn stocks totalled 12.2bn bushels, up 12.5% YoY and above market expectations of 12bn bushels. Meanwhile, US soybean stocks came in at 2.99bn bushels, down 0.7% YoY, but higher than the average market expectation of 2.97bn bushels. Finally, for US wheat, stocks were up 7.5% YoY to total 1.4bn bushels, largely in line with market expectations of 1.39bn bushels.
Brazilian Shipping Disruptions Propel Coffee Prices Higher in Agriculture Market

Brazilian Shipping Disruptions Propel Coffee Prices Higher in Agriculture Market

ING Economics ING Economics 25.01.2024 13:10
Agriculture: Shipping disruptions from Brazil push coffee higher Arabica coffee front month contract jumped around 7% yesterday as shipping disruptions from Brazil risk tightening the market in the short term. Brazil’s ports are facing strikes by customs officers and other inspectors from 22-26 January that are likely to delay shipments originating from Brazil. The tensions around the Red Sea trade route have further supported coffee prices. The shipment disruptions from Brazil could impact other commodities as well including soybeans, corn and sugar.   According to China’s Ministry of Agriculture and Rural Affairs, soybean production in China reached an all-time high of 20.84mt in 2023 primarily due to the country’s support for food security. Meanwhile, the soybean planting area in China reached 157 million mu (about 10.47 million hectares) last year, while that of oilseed crops exceeded 200 million mu. The ministry added that it plans to further increase the planting of genetically modified corn and soybean crops in a push to boost grain output and bolster food security in the country.   The USDA’s weekly export inspection data for the week ending 18 January shows that export inspections for corn stood at 713.3kt over the week, lower than 946.4kt in the previous week and 728.8kt reported a year ago. Similarly, US soybeans export inspections stood at 1,161.1kt, down from 1,278.2kt a week ago and 1,839.2kt seen last year. For wheat, US export inspections came in at 314.5kt, compared to 242.2kt from a week ago and 349.4kt reported a year ago.
Agriculture Report: Cocoa Hits Record Highs Amid Supply Concerns; Indian Sugar Production Drops; EU Soft Wheat Exports Decline; Canada Predicts Increase in Wheat Production for 2024/25

Agriculture Report: Cocoa Hits Record Highs Amid Supply Concerns; Indian Sugar Production Drops; EU Soft Wheat Exports Decline; Canada Predicts Increase in Wheat Production for 2024/25

ING Economics ING Economics 25.01.2024 15:13
Agriculture – Cocoa jumps on supply woes Cocoa futures trading in New York surged to fresh record highs yesterday on the back of a worsening supply outlook from the top producers - Ivory Coast and Ghana. Recent reports suggest that weather conditions and the insufficiency of fertilisers in these countries have resulted in lower output levels. Meanwhile, total cocoa arrivals at the Ivory Coast ports so far this season have dropped to 951.7kt as of 21 January, down 37% for the same period last year.   The latest data from the Indian Sugar Mills Association (ISMA) shows that Indian sugar production dropped 5.3% YoY to 15mt for the 2023/24 season until 15 January. Sugar production has been recovering over the past few weeks and the Association estimates that total sugar production for the 2023/24 season could still be higher than its earlier estimates on improving weather and higher prices for sugarcane to farmers. The Association also requested the government to allow an additional 1-1.2mt of sugar diversion for ethanol production citing sufficient availability for the domestic market. In its latest weekly report, the European Commission revealed that the EU’s soft wheat exports for the ongoing season stood at 17.4mt as of 19 January, down by 7.6% compared to 18.8mt reported in a similar period a year ago. The major destinations for these shipments were Morocco, Algeria, and Nigeria. The commission added that the nation's corn imports stood at 9.9mt, down 42% compared to a year ago. Agriculture and Agri-Food Canada (AAFC), in its first estimates for the 2024/25 season, expects Canada’s wheat production to increase 4.2% YoY to 33.3mt. The group estimates yield to rise to 3.23t/ha from 2.99t/ha, whilst harvest area is expected to decline from 10.94m hectares to 10.73m hectares for the 2024/25 season.

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