What to Watch in Commodities: Venezuela, BHP, Trade, Crops, Gold

LAGOS (Capital Markets in Africa) – As investors assess last week’s losses in metals and crude, attention now swings toward pandemonium, profits, policy and plants. Crisis-hit oil producer Venezuela faces yet more chaos after its immense devaluation. A settlement of a dispute with ConocoPhillips announced Monday may help boost the South American nation’s crude oil exports, aiding its faltering economy.

For profits, BHP Billiton Ltd. reports on Tuesday and the top miner will likely showcase very decent numbers; for policy, it’ll be a key period in the U.S.-China trade war as Donald Trump decides whether to escalate the conflict or make nice; and for plants, there’s a stream of news with a major U.S. crop tour under way, as well as supply estimates from Europe after a heat wave.

Rounding it off, a conference in China will shed light on how long the good times can last in steel, while in South Africa miners including Sibanye Gold Ltd. will report earnings as bullion buckles. Before delving into that varied selection, one other item stands out: central bankers including Federal Reserve Chairman Jerome Powell gather in Jackson Hole this week and they’ll have much to say on the economic outlook, path for U.S. hikes, and trade-war risks.

It All Falls Apart

Venezuela, holder of the world’s largest oil reserves, will command attention in energy markets this week after President Nicolas Maduro enacted a mammoth devaluation. The new bolivar’s value will be linked to a crypto currency, the so-called Petro, which is backed by crude oil and is valued by the government at $60, or 3,600 sovereign bolivars.

On Monday, Conoco said it’ll receive $2 billion in a settlement with Petroleos de Venezuela SA. The decade-long legal war waged by the Houston-based company has severely hampered PDVSA’s ability to ship crude, the commodity that bankrolls Maduro’s regime.

Ready for Rewards
Investors in BHP are in line for bumper returns on rising profits and will look to Tuesday’s annual earnings to learn when they’ll also win a slice of last month’s $10.8 billion exit from U.S. shale. The company is forecast to boost its full-year dividend more than 40 percent and has already pledged to hand back the bulk of proceeds from deals to sell its onshore oil-and-gas unit. CEO Andrew Mackenzie will discuss the results on Bloomberg Television, as well as give his take on the outlook for metals, iron ore and trade frictions.

The metals producer follows Rio Tinto Group and Vale SA in lifting payouts, as investors continue to press the biggest miners for rewards. With strong cash flow generation, the sector is “well-positioned to maintain a healthy level of returns,” Evy Hambro and Olivia Markham, managers of BlackRock Inc.’s World Mining Fund, said this month.

Ready, Aim… Pause?

Investors will find out this week whether President Trump will step up his trade war with China, or choose to take a tactical step back and allow some dialogue to take place, potentially aiding raw material prices that have taken an awful hit. On Aug. 23, Washington is set to begin collecting levies on the next $16 billion of Chinese goods ranging from motorcycles to railway cars, with China having vowed prompt retaliation should the U.S. act.

But will Trump hold fire? Vice Commerce Minister Wang Shouwen is headed to Washington later this month in an effort to de-escalate the tensions, although it remains unclear exactly when that visit will take place. And there are other signs that a deal may be in the works, with the Wall Street Journal saying that negotiators are drawing up a road map for talks to end the deadlock, culminating with a summit between Trump and Chinese President Xi Jinping in November, according to report that cited officials from both nations.

Field Work
So, how’s it going down on the farm? Analysts and traders may provide some answers as they gather field samples from seven of the largest U.S. producing states during this week’s annual Pro Farmer Midwest Crop Tour, a fixture on the grain market calendar that provides on-the-ground intelligence just ahead of the harvest season.

The results may help verify whether the U.S. Department of Agriculture’s outlook for hefty corn and soybean harvests will hold after it surprised the market Aug. 10 with forecasts for all-time high U.S. corn yields and record soybean stockpiles. Over in Europe, a better picture of the impact of the drought will emerge with Paris-based farm adviser Agritel’s report on the wheat harvest and German farmers’ union DBV’s crop outlook. On Thursday, the International Grains Council will issue its monthly market forecasts.

Forging Ahead
These are heady times for China’s mammoth steel industry and its suppliers, with prices soaring while demand’s been robust. A conference in Shanghai that kicks off on Tuesday will help investors determine whether it’ll last over the rest of this year and into 2019. The China International Iron Ore, Coking Coal and Coke Summit will focus on the environmental curbs that have helped boost steel prices, as well as the long-standing drive to trim excess capacity.

Speakers include Liu Zhenjiang, secretary-general of the China Iron & Steel Association, executives from iron ore miner Fortescue Metals Group Ltd., and Citigroup Inc. analyst Tracy Liao. While Trump’s tariffs have dominated headlines this year, China makes half the world’s steel and it’s what happens to producers in Asia’s top economy that sets conditions for mills worldwide.

All That Glitters
Among South African mining companies reporting earnings this week, the one to watch is Sibanye, which turns in figures on Thursday. The precious metals producer has been lobbying the government for expedited approval of its plan to buy rival Lonmin Plc, but analysts have suggested the acquisition may unravel. Sibanye is saddled with heavy debt after acquiring gold and platinum group metals assets, and it’s awaiting the outcome of an investigation into fatalities at its mines. The shares have halved this year.

Meanwhile gold futures are trading near the lowest since the start of last year as investors favor U.S. Treasuries as a haven against risk — although that may be about to change.

Bulls and Bears
For now, the latest Bloomberg survey shows traders and analysts are predicting the worst is yet to come for bullion. About 67 percent of the respondents are bearish, the most in three years, as borrowing costs rise in the U.S., hurting the appeal of the non-interest bearing metal.

Traders and analysts are the most pessimistic on soybeans in three months amid rising U.S. stockpiles. Sentiment was mixed for wheat and sugar, while bulls dominate in corn. In the gas market, respondents were mostly bearish about the outlook amid record domestic production. Terminal subscribers can see the other surveys here.

Source: Bloomberg Business News