What to Watch in Commodities: Trade Fever, China’s Fate, Exxon

JOHANNESBURG (Capital Markets in Africa)  – Commodity investors will navigate a powerful array of events this week that’ll shed light on the most pressing topics of the moment: will there be a trade deal between the U.S. and China; what’s next in energy, including priorities for behemoths Exxon Mobil Corp. and Chevron Corp.; and how is the outlook shaping up in global agricultural markets this year?

In China, leaders gather in Beijing to detail priorities for the year as they try to stabilize growth, with meetings taking place amid a blizzard of signs the U.S. is moving closer toward a deal to end the trade standoff. Stateside, Chevron holds its investor day on Tuesday, followed by Exxon the next day. In crops, there’ll be a key World Agricultural Supply and Demand Estimates report.

Completing the line-up, the focus shifts to metals. Aluminum giant United Co. Rusal, which has just seen off crippling U.S. sanctions, presents earnings on Thursday and will offer insight into how it’s faring as well as the market outlook. Lastly, diggers descend on Toronto for the mammoth PDAC conventionto assess mining’s most promising frontiers in a gathering that’ll play out as Barrick Gold Corp. presses home its hostile bid for Newmont Mining Corp.

Mission Critical
China’s elite will gather in Beijing for the annual get-together that’s known locally as the “two sessions” — an intense two-week cluster of top-level meetings to lock in policy priorities for the year ahead. It’s a critical time for President Xi Jinping as his trade team negotiates the complex stand-off with the U.S., while economic growth slows at home. The high-profile confab in the capital includes the National People’s Congress, China’s main legislature.

Commodities investors will be on alert for signs that the ruling Communist Party will bolster efforts to arrest the slowdown that’s weighed on prices. The first big reveal comes on Tuesday morning, when Premier Li Keqiang’s annual work report is dished out to reporters at the Great Hall of the People. It has targets on everything from gross domestic product to steel output. Last year China’s economy grew 6.6 percent, the weakest pace since the early 90’s.

Meet the Street
The U.S.’s two biggest oil companies meet with Wall Street this week for their annual analyst days in New York. Exxon, analysts’ least-favored major producer, has the most to prove. CEO Darren Woods will be looking to justify a big ramp up in capital spending each year through 2025, at a time when shareholders are demanding financial discipline. Woods is expected to drip-feed projections for future plans such as deepwater oil production from Guyana and growth from the Permian.

Chevron CEO Mike Wirth will likely have an easier time, although analysts are concerned about a potential overspend on its giant Tengiz project in Kazakhstan and want reassurance that growth plans after 2021 won’t match the free-spending of the early 2010s.

Food for Thought
While energy and metals have advanced in 2019, agricultural raw materials are lagging behind, and investors will get two opportunities this week to gauge whether that trend will hold or shift. On Friday, the U.S. Department of Agriculture will unveil the latest World Agricultural Supply and Demand Estimates, its influential compendium of forecasts. Traders are awaiting the USDA’s update on its forecast for Brazil’s soybean crop that’s being harvested. Brazil and the U.S. are competing for a bigger share of global soy trade at a time when Chinese imports are declining.

Before that on Tuesday and Wednesday, industry players meet in Australia’s Canberra for a conference on the 2019 outlook, weighing prospects for wheat, cotton, sugar and milk from the southern hemisphere’s agricultural powerhouse. On top of remarks from Agriculture Minister David Littleproud, USDA Chief Economist Robert Johansson will offer his views.

Recovering Ground
Investors will be able to gauge the full impact of U.S. sanctions on Rusal when the Russian aluminum giant reports earnings Thursday. The effect on revenue is likely to be more muted than previously thought as a higher realized price for the metal offset declining sales volumes, according to Bloomberg Intelligence analysts Yi Zhu and Anthony Cham Fung Yau.

The shares roared ahead after the punitive measures were lifted in January, recovering some of their losses since they were first imposed. They jumped again last month, when the company said it sees aluminum demand improvingamid a heavy deficit, with upside potential for prices.

Wheeling and Dealing
M&A talk and mine financing will be hot topics at the massive Prospectors & Developers Association of Canada conference in Toronto this week. The confabis one of the biggest in the mining world, attracting over 25,000 attendees from 135 countries.

A burst of deal activity among big gold producers — not to mention an increasingly confrontational battle between the two industry leaders — have reignited interest in the companies and the precious metal. Miners will be wondering if consolidation can translate into more interest from generalist investors — and how that will affect their access to finance in the year ahead.

Bulls Versus Bears
Widespread rains projected for Brazil have boosted cane crop prospects in the world’s largest sugar producer, but they are also dimming the outlook for prices. About 67 percent of traders and analysts surveyed by Bloomberg were bearish, the most since mid-October. India, the second-biggest producer, approved a plan to provide subsidized loans to struggling mills, enabling them to add to the global glut.

Sentiment was mixed in the copper and gold markets, while bulls dominate in crude. In the natural gas market, analysts and traders were split on whether a cold blast early this month will be enough to lift prices.

Source: Bloomberg Business News