What to Watch in Commodities: Goldman, OPEC+, Copper, Rio, China

LAGOS (Capital Markets in Africa) — Commodity investors may witness a powerful split-screen moment this week as U.S. earnings season throws a spotlight on companies’ pandemic-driven pain just as China announces its mammoth economy has returned to growth. And with a keen watch on both of those conflicting trends, OPEC and its allies may announce plans to start tapering historic output cuts.

Among corporates reporting are top banks including Goldman Sachs Group Inc., whose commodities unit may have enjoyed a good quarter even as lenders overall faced challenging conditions.

Aluminum giant Alcoa Corp. turns in full numbers after reporting its preliminary results last week. Rio Tinto Group and Anglo American Plc will release output data, offering insights into iron and copper markets, with the prices of both materials rallying hard on Monday.

The weather features, too, as the U.S. bakes in a vicious heat wave that may strain power grids and stress crops. As many as 122 daily heat records are forecast to be tied or broken in the coming week, according to Lara Pagano, a forecaster at the U.S. Weather Prediction Center in College Park, Maryland.

A Bright Spot in Tough Times
Leading banks including Goldman Sachs report earnings this week, and overall it’s expected to be their worst quarter since the financial crisis. But among the welter of figures, investors will be eager to see which of them managed to take advantage of the wild swings in raw materials. Goldman’s commodities business generated more than $1 billion in revenue this year through May, people with knowledge of the matter told Bloomberg last month. Much of that came from oil trading overseen by Anthony Dewell and Qin Xiao, who correctly positioned their desks for the collapse in prices.

Oil markets have had a very turbulent first half of 2020, as the Saudi-Russian price war pressured prices and the coronavirus pandemic sent demand cratering. But some traders have made substantial gains from the volatility. Goldman lifts the veil on its results on Wednesday, and there’ll be a live blog to break down the figures and executives’ remarks, which can be accessed via TLIV. Citigroup Inc. and JPMorgan Chase & Co. report their performances the day before.

A Tough Call
Oil traders will focus this week on the latest online gathering of the OPEC cartel and its partners, which is scheduled for July 15. The coalition has almost tripled crude prices from April’s lows by slashing unprecedented volumes, realigning a market upended by the coronavirus shock. Now it must decide whether to keep all of those 9.6 million barrels of daily supply offline for an extra month, or restore about 2 million as originally planned.

With Brent above $40 a barrel, demand returning and several corners of the market looking tight, there’s justification for OPEC to take its foot off the pedal. But with U.S. inventories near a record and a second wave of the pandemic on the loose, there’s the reason for caution too. Another issue for the cartel is deciding the extent of additional cuts to impose on members — such as Iraq and Nigeria — who’ve been lax in delivering their share of reductions.

On the Mend
By the end of this week, commodity markets will know a good deal more about China’s likely trajectory over the rest of the year and what that’ll mean for raw material demand and prices. As local policymakers chart a recovery from the heavy pandemic-driven blow suffered in the opening months of the year, investors can pick over gross domestic product figures plus industrial output data on Thursday and, two days before that, trade flows for steel, copper, and soy. For the GDP print, surveys point to a second-quarter expansion of 1.5%.

That growth — if confirmed — underlines forecasts that China is expected to fare far better in 2020 than rivals. Last month, the International Monetary Fund projected the country’s stimulus-aided economy would still manage to expand 1% this year while the U.S. shrinks 8%. On top of the macro data, there’s conference action too, with Shanghai Metals Market events on copper and battery materials, plus HKEX Group sessions on ferrous and precious metals.

Unearthing Insight
As output in iron ore’s powerhouse Australia lifts to keep pace with strong demand, copper mines in Chile — the top-producing nation — are contending with an escalating challenge from the pandemic. There’ll be fresh insights into both of those key trends with output data this week from Rio Tinto Group and Anglo American Plc, each a producer of both materials.

Copper producers have scaled back operations as thousands of workers in Chile test positive for Covid-19, a move that’s squeezed supply and sent prices surging. Spot iron ore is at the highest since August 2019 as mines in Brazil struggle to lift output, leaving Australia to feed China’s restored demand. Rio’s shipments rose 21% in the June quarter on the previous three months, UBS Group AG forecasts. Anglo will report on Thursday and Rio follows Friday.

The Heat Is On
In the U.S., a coast-to-coast heatwave is expected, and the searing temperatures have already knocked off daily records. Excessive heat warnings currently cover large parts of California, Arizona, Texas, and Louisiana, with advisories filling in the gaps and extending the sultry reach of the hot spell to Florida, the National Weather Service said. It’ll be shifting north and east over the next two weeks.

Corn is harvested in Illinois.
While past years have been hotter — notably 2011 and 2016 — the extensive reach of this heatwave and the warm nights may create record electricity demand for cooling. The entire U.S. grid will be under strain, especially the PJM Interconnection LLC system that stretches across 13 states in the Midwest and the Mid-Atlantic, said Jim Rouiller, a lead meteorologist at the Energy Weather Group LLC. The high temperatures and scorching sun can also bedevil developing corn and soybean plants, affecting yields later in the season.

Source: Bloomberg Business News