The USDA estimates that global 2019/2020 soybean carry-out stocks will be 102.44 Mt compared to a previous estimate of 98.86 Mt. This is based on a production of 126 Mt in Brazil, 54 Mt in Argentina.
Venezuela is said to have sold another 6 tonnes of gold (representing $350 million). Only 90 tonnes remain in the central bank’s reserves.
Chinese steel production increased by 3.1% over January-February, during the coronavirus epidemic, to 154.7 Mt with a daily average of 2.58 Mt (2.72 Mt in December and 2.54 Mt in January-February 2019). This given that 2020 is a leap year!
The Malaysian government has decided to stop work on its oil palm plantations for two weeks. This will represent a drop in production from between 350,000 to 700,000 tonnes in March.
Aluminium production in China rose another 2.4% in the first two months of 2020. However, stocks there seem to have increased considerably with the drop in exports of semi-finished products (-23%).
Platinoids are particularly spectacular victims of the crisis. In mid-March, platinum was at its lowest level since 2002 ($588 per ounce) and palladium tumbled from a record of $2,875 per ounce to $1,500. This is linked to the cessation of car factories and market downturn; the market subsequently rebounded with the announcement of South Africa’s lockdown.
Coronavirus doesn’t just have consequences on supermarket shelves. At the end of March, there were precautionary purchases by large importers of wheat and rice, worried about possible logistical problems and the risk of not being delivered.
In January and February, China imported 560,000 tonnes of pork, an increase of 158% compared to 2019. In December, China imported 270,000 tonnes.
In the first quarter of 2020, the spot price of uranium rose 11% from $24.63 per pound of U3O8 in January to $27.35 in March.
Argentina’s beef exports have collapsed with the coronavirus. China, which normally imports 50,000 tonnes per month, only imported 15% in March.
The International Grains Council anticipates a record world cereal harvest at 2.22 billion tonnes (+2%) for 2020-2021 and a consumption of 2.23 Mt. The production of maize will be 1.16 Mt (1.12), that of wheat 763 Mt. Soybean production is estimated at 366 Mt (341) and rice production at 509 Mt (499).
According to a study the ICO published in early April, a 1% drop in overall GDP of the 20 countries that consume the most coffee translates into a reduction in consumption of 0.95%, or 1.6 million bags .
The coronavirus will prevent Art Basel from being held. But, the Swiss contemporary art fair has published its annual study on the world art market along with UBS: in 2019, it declined by 5% to $64.1 billion: 10% decrease in China, 5% in the United States, 9% in the United Kingdom, but… a 7% increase in France. According to Artprice, worldwide revenue from fine art sales was down 38% in the first quarter of 2020.
Rhodium remains—by far—the most expensive metal in the world (€365,000 per kg). It has experienced an identical rise to that of palladium for the same reasons… automotive.
In April, oil refining activity is expected to increase in China by 10% (750,000 bpd) from March.
The resilience of the Russian oil majors is certainly linked to the devaluation of the ruble and to the fact that because of the sanctions, the companies have most of their costs in rubles and not in dollars, but also to a tax exemption system that exonerates companies from all taxes and royalties below $15 a barrel of Urals (which scores $5 less than Brent on average). At $25 a barrel, companies make a profit.
The impact on US shale oil production will be felt in 2021. In order to maintain production each year, at least 10,000 wells must be drilled. For 2020, 14,000 wells were planned for an investment of $100 billion. With the crisis and the collapse in prices, there is talk only of 5,000 wells for $80 billion and therefore a potential decline of at least 2 Mbd in 2021. The consultancy Rystad Energy are even talking of 4 Mbd, which compares with figures put forward by Donald Trump.
The only benefit of the drop in US shale oil production is that it should be accompanied by a drop in the production of natural gas associated with oil. This represents half of the American production of gas. Gas production could decrease by 10% by 2021, which would have a positive effect on a market that has been at its lowest since 1995.
There appear to have been exchanges between OPEC and the Texas Energy Board. The idea that Texas could reduce its oil production by 10% has not been ruled out. The last time there was an intervention of this nature was in 1973.
With the drop in the price of a barrel, investments in shale oil in the United States will collapse, which will have consequences on production, but in 2021! Goldman Sachs estimates that U.S. production could fall 1.4 Mbd in the third quarter of 2021.
According to Refinitiv, China is on an oil import trend in March of 10 Mbd (9.26 Mbd in March 2019).
In such circumstances, the hedge taken by Mexico makes perfect sense. In January, Mexico hedged production for $1.37 billion (1.7 Mbd) at $49 a barrel. Mexico would have bought put options on Brent with an exercise price of $54/$56 which amounts to Maya at $42. on the other hand, the hedges used by American producers (often ‘three-way collars’) do not seem to offer the same guarantees, many producers having sold puts in the $40/$45 zone to limit the cost of premiums.
IHS Markit estimates the oil surplus that will weigh on the market in April and May between 4 and 10 Mbd. Standard Chartered has an extreme scenario with a second quarter surplus of 12.9 Mbd! At the end of the year, even taking into account the recovery, the cumulative surplus would be 2.1 billion barrels. Goldman Sachs puts it at a billion barrels.
Tensions in the oil freight market weigh all the more heavily given the drop in crude oil prices. A recent charter of a ULCC between Saudi Arabia and the United States was made at $350,000 per day, or the equivalent of $16.85 per barrel! That was the maximum and the rates around 20 March were closer on this route to $13 a barrel.
On 17 March, Standard Chartered published an estimate of a drop in world demand for oil in 2020 of 3.39 Mbd, even stronger than the 2.71 Mbd drop in 1980! On 18 March, Goldman Sachs placed the decline at ‘only’ 1.1 Mbd.
Exxon Mobil, in partnership with ENI and the Chinese CNPC, could delay the giant natural gas project of Rovuma in Mozambique. In addition to the coronavirus, there is the problem of profitability: the cost of producing LNG will be $7 per MBtu and the market has hit bottom at $2.7.
Logically, exports of refined products from China surged in the first two months of the year: +32% for gasoline, +21% for kerosene in particular. According to CNPC, demand for refined products in China should drop 35.7% in the first quarter.
Barclay’s lowered its average oil price estimates for 2020 on 23 March: $31 for Brent and $28 for WTI.