What to Watch in Commodities: Trade Deal, Oil, Alcoa, Palladium
LAGOS (Capital Markets in Africa) – Commodity investors will focus this week on Washington’s top trade policy issue since Donald Trump won the presidency: reshaping relations with China. Tariff Man is to host a hard-won signing ceremony with Beijing on a first-phase deal, and markets want all details and ask what’s next.
Earnings season kicks off in earnest with numbers midweek from aluminum maker Alcoa Corp., followed by Schlumberger Ltd. on Friday. The oilfield services giant posted big write-downs in October, and investors will be keen for an update on how Chief Executive Officer Olivier Le Peuch is faring.
Energy markets get three consequential 2020 outlooks, with analysis from OPEC, the International Energy Agency, and the Energy Information Administration. As a precursor, the IEA’s Fatih Birol said oil prices aren’t likely to rise significantly. Lastly, palladium’s in the spotlight as records tumble.
Sign Here
Commodities have been front and center in the trade fight between the U.S. and China, and the signing of the first-phase deal between the two nations is set to be this week’s most consequential event. The Chinese delegation to Washington will be headed by Vice Premier Liu He, Beijing’s lead negotiator, and include other heavy hitters. Ahead of Wednesday’s ceremony, President Donald Trump made it plain he wants to start talks promptly on a phase-two accord.
In addition to parsing the rhetoric, investors will be looking for the fine print of the pact to see how it’s meant to operate in practice, especially Beijing’s buying of U.S. farm goods. On that front, markets will also be on alert for crop export inspection data from the U.S. Department of Agriculture on Monday and export sales numbers on Thursday. A couple of days after the signing, GDP data from China on Friday will reveal how the world’s No. 2 economy is faring.
Triple Vision
As the dust settles after the recent U.S.-Iran face-off, oil traders are turning their attention back to market fundamentals and will get insights from three key reports. The U.S. government’s Energy Information Administration, OPEC and the International Energy Agency will all publish first updates of supply and demand balances of 2020 on Tuesday, Wednesday and Thursday, respectively.
Oil in New York capped its biggest weekly loss since July last week as the prospect of an immediate confrontation between the U.S. and Iran abated and traders reflected that global markets remained comfortably supplied. The three reports should bring guidance on whether that weakness will persist. They’ll also give estimates on how rigorously OPEC followed through on the final month of last year’s agreement to reduce production, thus providing a sense of how strictly the cartel might deliver this year’s deal.
Lean In
Investors are looking to get a better idea of how the biggest U.S. aluminum producer is managing in its efforts to get leaner after a string of quarterly losses. Alcoa, which has been weathering a slump in demand and falling prices, said in October it intended to sell non-core assets to generate as much as $1 billion in net proceeds. The Pittsburgh-based company is expected to highlight those efforts on Wednesday when it reports fourth-quarter earnings.
While investors have cheered the move, sending its stock to the best quarterly performance since 2017, analysts don’t see a quick turnaround. They project the company will report a fourth straight loss before returning to profits in the first quarter. This month, Alcoa agreed to sell a waste-treatment facility for $250 million, and Morgan Stanley said it expects more sales to follow.
Fracking Funk
Schlumberger, which is leading the global oil industry shift from shale drilling to more offshore and international work, is expected to update investors on its strategic review of its North American onshore business. For the first time ever, fracking service providers in the U.S. are starting to scrap pumps to alleviate a glut of gear as explorers dial back spending.
The company based in Houston and Paris is expected by analysts to report $8.1 billion in sales for the final three months of 2019, marking Schlumberger’s lowest fourth quarter for revenue since 2016, when the worst crude-price crash in a generation bottomed out. The collapse in shale drilling has pulled the global drilling-rig count down 9% last year, according to Baker Hughes Co.
Hottest Commodity
Palladium just came off a scorching year when it surged more than 50%, and the precious metal has barrelled into 2020 in similarly remarkable fashion, hitting records above $2,100 an ounce. Investors will be watching this week to see whether the extraordinary gains can be sustained. It’s already up more than 8% this year, benefiting suppliers from South Africa and Russia.
The meteoric rise has been buttressed by strong consumption from carmakers and tight supplies. Each time in the past six months that prices have cooled off, the declines proved short-lived as dip-buyers piled in. Citigroup Inc. reckons it may hit $2,500 in six to 12 months.
Bulls & Bears
The USDA lowered its forecast for sugar production in the season-ending Sept. 30 after a cut to Louisiana’s cane harvest. Expectations of weaker output prompted 71% of traders and analysts to expect a wider premium between the refined sweetener against its raw counterpart, the most since October, according to a Bloomberg survey.
Oil prices fell last week after signs that the U.S. and Iran were stepping back from a deeper military conflict. Analysts and traders said they expect crude to continue its drop. Meanwhile, those surveyed on gold were split after the metal mostly erased gains due to the tensions — though prices ended the week higher after the U.S. imposed fresh sanctions on Iran.
Source: Bloomberg Business News