Commodity wrap - Oil, Copper, Soybean, Sugar

Oil:

• Oil prices have fallen in the wake of a new phase of a trade war between the US and China

• The latest data showed a notable increase in US oil inventories as well production

• OPEC+ needs to keep its production low in response to a production increase elsewhere

• OPEC output has fallen to its 4-year low mainly due to lower output in Iran and Venezuela

• Iran calls OPEC for action regarding US sanctions, Iran may even leave the cartel

• Saudi Arabia considers a production increase in June for its own use

• Saudi Arabia signals higher oil exports to Asian countries in response to a decrease in output/exports in Iran

Oil prices may be at the beginning of a pullback. However, large price moves may come around the mid-year. Source: xStation5

Copper:

• An economic slowdown related to the trade war negatively affects copper prices, weaker Chinese PMI also pushed prices lower

• Chinese copper imports grew 3.6% MoM in April

• Bad weather conditions in Chile may lead to lower output, strikes in mines in Peru are possible in the nearest future

• Copper prices trade at the relatively high levels compared to gold and silver, US dollar remains strong which could an additional factor acting not in favour of copper prices

The copper-silver ratio stays well above the US 10Y yield. Source: Bloomberg

A number of longs is relatively low looking at the past two years. On the other hand, we are still off the extreme levels of net positioning. Source: Bloomberg

Soybean:

• Soybean prices have declined under a threat that China could stop purchasing grains

• The US complains that China has not fully fulfilled its commitment regarding higher soybean purchases

• Chinese imports of US soybean increased 10.7% YoY (55% MoM), however, it’s related to a delay of purchases in March (VAT on soybean purchases was cut since April onwards)

• Sown areas in the US are much lower compared to the 5-year average

Soybean sown areas remain below the 5-year average. Source: Bloomberg

Brazilian soybean prices have declined below $8 per bushel. It is worth noting that Argentina and the US have now almost the same share in exports to China, while the Brazilian share is the highest ever. Source: Bloomberg

Sugar:

• Good weather conditions in India suggest higher sugar output there

• Good weather conditions in Brazil

• Sucden expects a deficit in the market in the 2019/2020 season compared to a surplus in the 2018/2019 season

• A production fall in expected in India and Thailand, production in Europe should not rebound

• Sugar inventories remains high limiting upside for prices

• Upcoming elections in India should lead to keeping support for producers from the government

Sugar net positioning remains at the neutral level. Source: Bloomberg

Sugar prices have fallen markedly of late due to a huge surplus as well as BRL depreciation. Source: xStation5