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  • Strategy and Tactics Commodity Market Report 24 Janaury 2018

    All table data in this report is sourced from Bloomberg

    Base metals (click to view) and Fuel (click to view)

    Soft commodities (click to view)

    24-Jan-18Brent

    crudeWTI crude

    Fuel oil /

    bunker

    Gas oil /

    dieselAluminium Copper Iron ore

    Thermal

    coal

    Current 70 64 373 82 2,235 7,049 74 107

    Previous month 65 58 358 76 2,137 7,019 71 104

    1 year ago 55 53 326 64 1,870 5,879 83 83

    3 year average 52 48 280 62 1,766 5,564 62 73

    7 year average 82 73 466 94 1,883 6,644 97 82

    Change 1 month 7% 10% 4% 8% 5% 0% 4% 3%

    Change 1 year 26% 23% 14% 27% 20% 20% -11% 29%

    7 year peak 127 114 756 143 2,772 10,148 192 139

    Change / peak -45% -43% -51% -43% -19% -31% -61% -23%

    7 year trough 28 26 148 33 1,424 4,311 38 47

    Change / trough 151% 146% 152% 151% 57% 64% 97% 126%

    Units USD/bbl USD/bbl USD/mt USD/bbl USD/mt USD/mt USD/mt USD/mt

    24-Jan-18 CRB index CRB food WMP Wheat Corn Soybean Sugar Palm oil Barley

    Current 197 338 3,010 422 351 986 13 638 238

    Previous month 188 338 2,755 425 352 950 15 610 237

    1 year ago 195 345 3,283 427 363 1,059 21 701 255

    3 year average 188 349 2,654 453 362 969 16 614 231

    7 year average 248 393 3,224 576 477 1,168 18 740 231

    Change 1 month 5% 0% 9% -1% 0% 4% -10% 5% 0%

    Change 1 year 1% -2% -8% -1% -3% -7% -36% -9% -7%

    7 year peak 371 514 5,245 943 839 1,768 35 1,307 268

    Change / peak -47% -34% -43% -55% -58% -44% -63% -51% -11%

    7 year trough 155 322 1,590 361 302 851 10 471 192

    Change / trough 27% 5% 89% 17% 17% 16% 27% 36% 24%

    Units Index Index USD/mt Usc/bushel Usc/bushel Usc/bushel USD/lb USD/mt AUD/mt

  • Strategy and Tactics Report on base metals 24 Janaury 2018

    Page | 1 Strategy and Tactics Report Commodity Markets 24 Janaury 2018

    Aluminium table

    USD/mt Spot 3m 15m 27m

    Current 2235 2249 2278 2301

    Two weeks ago 2159 2179 2228 2263

    Six months ago 1912 1941 1981 2011

    One year ago 1870 1867 1881 1905

    PwC expected aluminium range USD/MT

    LME aluminium spot: 2,235 Low High

    1 month 2,000 2,300

    6 month 1,900 2,500

    Copper table

    USD/mt Spot 3m 15m 27m

    Current 7049 7070 7178 7203

    Two weeks ago 7141 7145 7240 7266

    Six months ago 6283 6325 6401 6435

    One year ago 5879 5944 5965 5947

    PwC expected copper range USD/MT

    LME copper spot: 7,049 Low High

    1 month 6,600 7,100

    6 month 6,500 7,300

    Our central view

    Possibility that ongoing supply side reforms

    will result in demand/supply rebalancing

    providing support to prices.

    Regulatory developments in China to be key

    risk going forward, given changes to

    environmental policy.

    Metals generic hedging recommendations

    Buyers:

    0-6 month aluminium: maintain

    midpoints of policy at current levels with

    staggered orders lower to be halfway between

    midpoints and maximums at USD2,000/mt,

    moving to maximums at USD1,900/mt.

    6-12 month aluminium: maintain

    midpoints of policy at current levels with

    staggered orders lower to be halfway between

    midpoints and maximums at USD2,000/mt,

    moving to maximums at USD1,800/mt.

    12+ month aluminium: filter tests are not

    currently activated.

    0-12 months copper: additional hedging

    between mids and max should be entered at

    USD6,600/mt with staggered orders lower to

    USD6,500/mt to target maximums of policy.

    Producers:

    Aluminium/copper: no new hedging.

  • Strategy and Tactics Report on base metals 24 Janaury 2018

    Page | 2 Strategy and Tactics Report Commodity Markets 24 Janaury 2018

    Base metals charts of the week

    The CRB metals index has climbed 4.7% over the past month supported by a broad surge in base metal prices due to the rosy outlook for global growth over 2018, a weaker USD and strong Chinese data. Q4 Chinese GDP was up 6.8%yoy compared with a forecast of 6.7%yoy, and industrial output also beat market expectations coming at 6.2%yoy vs 6.0%yoy providing further support.

    Copper prices improved 4% over the month, currently trading at US$7049/mt. Prices have recovered after dipping below US$7000/mt when reports surfaced earlier this week that stocks at the London Metals Exchange warehouses jumped by 28% to the highest in 10 month. Data released on Monday showed that Chinas refined copper output rose 16.7%yoy to a record high of 865,000/mt in December. Smelters were rushing to increase output before the new treatment and refining charges begin. Looking ahead we maintain the view that prices will be well supported by strong global growth and limited supply. However, we note that there remains downside risk to current price levels due to the uncertainty surrounding the duration of regulatory developments in China.

    Iron ore prices have soared over the last month, climbing over 13% to currently sit at US$76.60/mt for the 62% grade. This comes at a time where Chinas stockpiles of iron ore are hitting record levels (over 150 million tonnes). Late last week saw the release of Chinese crude steel production for December. Despite the effort from the government to implement curbs to improve air quality in the Northern provinces production rose 1.8% over the year resulting in total production for 2017 up 5.7% from 2016. As mentioned in earlier reports, we maintain the view that iron ore prices will remain stable around US$70/mt.

  • Strategy and Tactics Report on base metals 24 Janaury 2018

    Page | 3 Strategy and Tactics Report Commodity Markets 24 Janaury 2018

    Aluminium prices have follow the trend, climbing more than 10% over the past month to currently sit at$2243.50/mt. As mentioned in previous reports, prices have tracked the US ISM Manufacturing index closely over recent years and movements over the past month have proved no different with the December reading at 59.7, up 1.5 from November. Fears of the Trump administration imposing trade restrictions on Chinese steel imports have also helped support price sentiment. These announcements should be due for release over the next month and will likely determine the short term direction of aluminium prices.

    We recommend aluminium buyers top up hedging with staggered orders around the US$2,000/mt level, down to US$1,900/mt to be at maximums of policy in the 0 6 month timeframe on any short term dips.

  • Strategy and Tactics Report on fuels 24 Janaury 2018

    Page | 4 Strategy and Tactics Report Commodity Markets 24 Janaury 2018

    Brent table

    USD/bbl Spot 3m 6m 12m 24m

    Current 70 69 68 66 62

    2wks ago 69 68 67 65 61

    6m ago 53 52 53 53 54

    1y ago 55 56 57 57 57

    Gas oil table

    USD/bbl Spot 3m 6m 12m 24m

    Current 74 82 81 79 77

    2wks ago 81 81 79 78 76

    6m ago 64 64 63 63 64

    1y ago 64 66 67 68 69

    LFO table

    USD/bbl Spot 3m 6m 12m 24m

    Current 435 453 450 439 382

    2wks ago 449 451 449 441 393

    6m ago 355 364 362 362 367

    1y ago 378 373 376 374 371

    PwC expected Brent crude range USD/bbl

    Brent crude spot: 70 Low High

    1 month 60 70

    6 month 55 75

    Our central view

    Prices are expected to remain range bound

    (Brent US$60/bbl US$70/bbl) over the

    coming months based on fundamentals (limited

    upward pressure).

    We remain sceptical over OPECs ability to

    maintain compliance to the production cutting

    deal and their ability to materially influence

    prices over the coming months as US shale

    output grows.

    Concerns around US rising shale

    production/non-OPEC led production and the

    impact on fuel prices continue to negatively

    affect market sentiment.

    Fuels generic hedging recommendations

    Buyers:

    0-12 months; buyers maintain midpoints under

    USD60/bbl, moving to maximums at USD55/bbl

    in the 0-12 months time frame.

    12-24 months; Stagger low levels of base 12-24

    month hedging at prices from USD55/bbl down

    to USD50/bbl.

  • Strategy and Tactics Report on fuels 24 Janaury 2018

    Page | 5 Strategy and Tactics Report Commodity Markets 24 Janaury 2018

    Fuels chart of the week

    Over the holiday period we have seen Brent Crude shift higher currently sitting at $69.78/bbl, a level not seen since late 2014. Hedge funds have continued to add to their record bullish positions in the week leading up to 16 January 2018. Net long positions were increased in the six key futures and options contracts linked to crude and fuels by 41 million barrels to a record 1,400 million barrels.

    US energy companies cut oil rigs for the second time in three weeks. In the week to 19 January five rigs were cut bringing the total to 747. At the end of 2016 the rig count stood at 525 representing a 42% increase over 2017

    Oil powerhouse Saudi Arabia has indicated that global producers are willing to continue cooperation on the supply cut deal past 2018 after the deal expires at the end of the year. There was also talk around a new form of agreement rather than continuing with current production cuts. The current deal along with ongoing high rate of compliance by the Organisation of Petroleum Exporting Countries (OPEC) is thought to have supported the recent rally and help clear the global supply glut with stocks steadily declining around the globe.

    Prices have been further supported by a brighter outlook on global growth with the International Monetary Fund (IMF) revising th