What to Watch in Commodities: Trade, Aramco, Megadeal, OPEC, LNG

LAGOS (Capital Markets in Africa) – Commodities posted good returns in the first quarter, although there are now concerns on whether gains can be sustained. As April opens, it’s deals that are on the radar: the U.S. and China plan more talks as they seek to narrow differences on trade, and in what could be the biggest deal in the gold-mining industry, Goldcorp Inc. shareholders vote on the merger with Newmont Mining Corp. Also key to events, mammoth oil producer Saudi Aramco will undertake a global roadshow to prepare for a debut international bond sale.

Jaw Jaw
The top trade negotiators from the U.S. and China are certainly racking up the air miles as they seek to close a deal that’s roiled financial markets and raw materials. This week, Vice Premier Liu He travels to Washington to meet U.S. negotiators from Wednesday, as well as have a sit down with President Trump. Last week saw Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in Beijing once again, with the sessions described positively.

Earlier in the year there were signals an agreement would be done and dusted by this stage — but that timeline has slipped, with White House economic adviser Larry Kudlow now saying negotiations could drag on for months. Amid all the chatter, investors will absorb recent data from China for a read on conditions in Asia’s top economy after the PMI official print at the weekend showed a return to expansion. Later this week on Tuesday, the World Trade Organization releases its trade forecast report for 2019-2020.

Saudi Spectacle
The world’s largest oil company is taking a major step toward openness this week as it launches a global roadshow from April 1 to convince investors to lend it money for a $69 billion petrochemicals deal. Saudi Aramco hired banks including JPMorgan Chase & Co. and Morgan Stanley to manage the bond offering, and they will guide the state-owned firm through investor meetings in London, New York, Boston, Singapore, Hong Kong, Tokyo, Los Angeles and Chicago, according to a person familiar with the matter.

The offering will require Aramco to disclose its accounts to investors for the first time since its nationalization about four decades ago, and is a precursor to even greater transparency required for its initial public offering, planned for 2021. Fitch Ratings gave the company its fifth-highest investment grade level on Monday in the the first public assessment of the company’s credit quality.

Decision Time
Goldcorp shareholders vote Thursday on a $10 billion mega-merger with Newmont, which could be the biggest deal in the industry. After all last week’s fireworks, the deal now appears to be on firmer footing, with advisory firms ISS and Glass Lewis recommending investors vote in favor. Paulson & Co. and VanEck had expressed concern on the terms, prompting Newmont to propose a special dividend to win support from its shareholders.

Still, some Goldcorp investors remain upset about the executive compensationChief Executive David Garofalo and Chairman Ian Telfer will receive if the deal clears. VanEck portfolio manager Joe Foster has called it a “crime” to reward “poor performance with these huge payouts.”

Inside OPEC
U.S. President Donald Trump last week renewed demands that OPEC should pump more oil, saying prices are getting “too high,” but it seems unlikely that the cartel will comply as pledged cuts combine with unplanned losses. Bloomberg will publish its monthly OPEC production data on Monday, giving oil watchers an idea of how massive power cuts are affecting output in Venezuela and whether supply from sanctions-hit Iran continues to slide. The March numbers will also show whether Libya’s volumes are back above 1 million barrels a day following the restart of its biggest field, keeping the onus on Saudi Arabia to cut more deeply than it pledged in the OPEC+ deal.

Gassed Up
Leaders of the biggest energy companies are set to descend on Shanghai for a week-long powwow over the state of the world’s fastest growing fossil fuel, liquefied natural gas. Chief executives from Exxon Mobil Corp., Royal Dutch Shell Plc and others will be speaking and mingling at LNG 2019, the once-every-three-years conference organized by the International Gas Union.

High on the list of topics will be a crash in Asian spot prices, which have fallen by half this year as a warmer-than-normal winter ate into demand just as new supply from Australia and the U.S. starts up. Executives will also want to know whether China, which has surpassed Japan to become the top importer, will continue to support strong demand growth that could underpin more than $100 billion of projects under consideration.

Bulls Versus Bears
Gold traders and analysts retained their bullish outlooks even as the metal dropped below the key $1,300 an ounce level. About 60 percent of traders and analysts surveyed by Bloomberg are still positive. Given risks from trade wars, Brexit uncertainty and the prospect of slowing economies, gold may be “on the cusp of the much vaunted break out,” GoldCore Ltd. said Thursday.

Bullish sentiment in crude prevailed amid orchestrated production cuts by OPEC. About 57 percent of traders and analysts said they’re bullish on oil, roughly in line with sentiment at the start of the year. Sentiment was also positive for corn. Meanwhile, those surveyed were the least bullish they’ve been on soybeans in nearly five months. Terminal subscribers can see other commodity surveys here.

Source: Bloomberg Business News