Commodity markets

Crude oil at highest level since 2014 – growing likelihood of a final upsurge in the crude oil price

Demand for crude oil is booming, and the price is spiralling up. Following an initial phase of stagnation, the OECD industrial inventories which have been the subject of investor focus are now heading steadily downwards in response to the „production limitation efforts“ started in early 2017 by 14 OPEC and ten NOPEC countries. With increasingly aggressive rhetoric, Saudi Arabia and Iran are once again quarrelling at several fronts over the issue of regional hegemony in the Middle East. The USA is considering whether to quit the nuclear agreement with Iran in the not too distant future if an improvement agenda for what President Trump calls „the worst deal ever“ cannot be put in place by May 12. And the aforementioned OPEC/NOPEC coalition is giving vociferous consideration to extending its market control cooperation, despite the fact that it will soon have reached its self-set inventory normalization target. Given this abundance of…

Milk: cream of the crop!

Butter shortage in 2017 led to a sharp rise in the price of milk. Improved economic conditions have increased milk production in Germany and throughout Europe. Future milk price trend remains stable thanks to positive export momentum. Milk producers once again breathed easy in 2017 after a sustained period of stress. In 2017, the price of milk rose by a substantial 35% on average to 35.3 cents/kg. This growth was predominantly accounted for by the marked shortage of butter (fats market). As a result, the price of butter rocketed. Conversely, the sustained surplus in skimmed milk powder (protein products market) caused the price to continue its downward trend to generate a record price difference between butter and skimmed milk powder (“fat/protein spread“). The high milk price coupled with the low cost of animal feed in the EU has provided dairy farmers with increased gross margins. The positive economic conditions have…

OPEC-/NOPEC-Deal 3.0 – “The packaging is more tantalising than the content”!

Within the framework of yesterday’s meeting in Vienna, the 24 representatives of the OPEC/NOPEC coalition agreed to extend their production cuts up to the end of 2018. The reduction will constitute 1.72 million barrels/day. OPEC member states Libya and Nigeria, which had been previously exempted from the agreement, have accepted loosely formulated production ceilings. The parties also agreed to review the situation in June 2018. No official statement was made on a planned exit strategy. Overall, the market reacted positively to the new “crude oil news flow”. The Brent January future climbed to USD 63.50, as investors welcomed the unusual solidarity of the cartel – especially given the recent tension between Saudi Arabia and Iran concerning foreign policy. The rhetorical emphasis of the Vienna roundtable clearly struck the right note with investors. At first glance, the OPEC/NOPEC coalition at least gave the market what it was expecting. However, we believe…

Structural changes in the economy also having repercussions for companies

The effects of the energy transition as adopted and approved by the German government are also feeding through to companies. Siemens, for example, is now responding to the structural transformation in fossil power production and has announced a restructuring of its activities in this area. The objective is to increase the utilisation of the plants and expand efficiency by bundling resources. To achieve this, the company is also to cut back 6,900 jobs, half of which are in Germany. A dramatic structural change lies behind this decision. A drastic reduction in demand for large gas turbines (>100 megawatt) can be noted worldwide: Estimates reckon with approx. 100 turbines per annum as normalised level, with capacity lying at around 400 turbines. All in all, this market development is a reflection of the changes in the ecological attitude to power production. The latest forecasts on global warming at the 23rd Global Climate…

E-mobility triggers copper fantasy

The International Motor Show (Internationale Automobil Ausstellung – IAA) in Frankfurt opened its doors to the general public on Saturday. The automotive sector in Germany, which has been beleaguered by the diesel emissions scandal and speculation about unlawful collusion, is focusing at the IAA on electric mobility in particular. There is no doubt that the German automotive industry will launch an e-campaign with new models in the coming years. The pronounced future trend towards e-mobility will significantly drive the demand for industrial metals over the next decades. In addition to metals such as lithium, cobalt and nickel, which are used to manufacture accumulators, copper in particular should benefit in the long-term. For example, up to 140 kilos of copper are built into an electric car, depending on the range. In contrast, a car with an internal combustion engine requires an average of only 23 kg of copper. Copper is also…

Companies are earning superbly

The end of the Q1 2017 reporting season is upon us and company reports have been very upbeat. In the USA, sales by companies in the S&P 500 climbed 8% with profits outpacing them and soaring 15%. This is the strongest growth since Q3 2011. With one exception (telecom equities), profits rose in all sectors of the US economy – growth has been broad-based, despite the fact that on the year the greenback tended stronger. In Europe, too, the trend in the first quarter of the year was clearly northward: In the Stoxx 600 company sales increased 10%, with profits rocketing by almost 37%. The DAX companies booked sales rises of almost 4%, with profits running faster at 11 %. German corporations saw sales and earnings grow, albeit at less of a speed than for the S&P 500 and Stoxx 600; this can be attributed to the minor relevance of…