What to Watch in Commodities: China, Crude, Saudi, Novak, USDA

LAGOS(Capital Markets in Africa) – Commodity investors get to draw a line this week under what’s been an eventful quarter while assessing fresh signals about how energy, crop, and metals markets will fare into the year-end. In the U.S.-China standoff, traders will be on alert for a set-piece address from President Xi Jinping on Tuesday for hints on whether there’s much chance of a resolution.

In energy, the fallout from the strikes against Saudi facilities is in focus, as well as how Riyadh and Moscow plan to hone OPEC+ policy. Russian Energy Week kicks off, with Energy Minister Alexander Novak and Saudi counterpart Prince Abdulaziz bin Salman in attendance. As the week opened, Saudi Crown Prince Mohammed Bin Salman warned war with Iran would lead to a “total collapse of the global economy,” but said he prefers non-military pressure.

Crop traders will look to the U.S. and to Africa. Quarterly stockpile figures from the USDA on Monday will provide critical insight into the impact of the trade war, with U.S. holdings of soybeans expected to swell to a record. And as the annual cocoa-growing season starts this week in Ivory Coast and Ghana, attention will be on farmgate price announcements, plus crop data.

China in his Hands
Even when China’s on holiday investors can’t ignore it, especially in commodities. President Xi will lead events in Beijing this week to mark 70 years of Communist Party rule. He’ll deliver a major speech on Tuesday — the first day of a week-long national holiday — after what’s expected to be a massive display of military muscle in the heart of the capital. U.S. President Donald Trump used his high-profile address at the UN last week to hit out at China once again, so Xi now has an opportunity to offer a riposte.

The anniversary of the People’s Republic’s official founding falls at a pivotal moment, with Xi confronting the deep rift with Washington on trade, weaker growth as well as political challenges in Hong Kong. Ahead of the Beijing pomp, there’s the latest data on manufacturing on Monday that may show fresh weakness. Taken together, this week’s events will provide a springboard for the planned resumption of high-level trade talks in Washington in October.

Oil Powers Challenged
Two of the most powerful people in the oil market, Russian Energy Minister Novak and his Saudi counterpart Prince Abdulaziz, will share a stage in Moscow on Thursday. Their appearance at Russian Energy Week comes after a tumultuous period in which both countries suffered the worst output disruptions in their history, affecting hundreds of millions of barrels of production and shaking customers’ confidence in the reliability of their supplies.

While Russia has drawn a line under the contamination that hurt exports in April and May, Saudi Arabia is scrambling to fix the facilities hit this month, a strike that it blamed on Iran. The twin crises illustrate a more fundamental problem faced by the countries and their OPEC+ allies. Through all the disruption, crude has mostly traded in the $60s — hardly the kind of price that suggests a shortage. It’s a reminder that thanks to the U.S. shale boom and slowing global economy, the world faces a glut that could hurt prices into 2020.

Is the Pricing Right?
In addition to commentary from the Moscow conference, energy traders will get further insights into the state of the global market this week as Saudi Arabia releases official prices for November oil sales to customers in Asia, the Americas, and Europe. The announcements will be the first since the Sept. 14 attacks took out more than half of the output from OPEC’s No. 1 producer.

All eyes will be on the price of Saudi oil against offers by other Mideast producers in Iraq and Abu Dhabi, as well as Saudi Aramco’s ability to meet cargo requests by refiners. The kingdom’s pressing on with efforts to resume pre-attack output levels, and retain its reputation as the world’s most reliable supplier of crude ahead of a planned IPO for the state oil giant.

Heap of Trouble
The USDA’s quarterly stockpiles data on Monday will provide a fresh look at how much pain American farmers are enduring as the trade war rages. It’s been over a year since China, the top soybean importer, all but halted purchases of the American oilseed. As a result, U.S. inventories as of Sept. 1 likely hit a record 981 million bushels, more than double a year earlier, according to the average of analysts’ estimates compiled by Bloomberg.

While corn hasn’t been significantly impacted by the dispute because China isn’t a major buyer of U.S. grain, supplies are still expected to swell 13% to the biggest since 1988, according to the Bloomberg survey. The abundant stockpiles of both soy and corn should limit the fallout from the soggy U.S. growing season that has curbed yields of the incoming crops.

Cocoa Champs
Ivory Coast and Ghana, which account for about 60% of global cocoa output, will this week announce farmgate prices for their main harvest that begins Oct. 1. While three consecutive bumper crops weighed on prices and compensation, farmers can expect better pay this year as both countries prepare for presidential elections in 2020.

Good growing conditions in West Africa are expected to support another strong harvest. As forward sales for the 2020/21 season get underway, prices may increase if the two biggest growers succeed with their plans to sell cocoa at a proposed $400 per ton premium to support farmers’ living conditions.

Bulls & Bears
Bullish sentiment rose as raw sugar rallied three weeks amid dimmer supply outlooks in India and Brazil, the top producers. Output in the South Asian nation in the year from Oct. 1 may be lower-than-expected after floods damaged crops and demand increased for cane as cattle feed. Meanwhile, Brazilian mills increased the production of ethanol from cane after crude-oil prices improved.

Copper traders and analysts stayed mostly neutral for a second week, with respondents weighing demand risks against the possibility that a trade deal will help revive global growth. The survey came ahead of reports that the Trump administration will weigh limits on U.S. fund flows to China, potentially ratcheting up tensions. Those surveyed were split on short-term gold prices. Terminal subscribers can see other commodity surveys here.

Source: Bloomberg Business News