Commodity Wrap - Natural Gas, Platinum, Cocoa, Wheat (25.04.2023)

Natural Gas (NATGAS)

• Futures curve suggests that short-term demand in the United States will continue to drop

• Moreover, natural gas production on the US mainland climbed to near-extreme levels once again. However, total output is somewhat depressed due to lower output in Gulf of Mexico

• Inventories are climbing once again, leading to an increase in comparative inventories. This week one cannot rule out EIA report showing an inventory build of around 100 billion cubic feet, what could be a trigger for another leg lower on NATGAS market

• We may be set for a repeat from a turn of 2019 and 2020 when comparative inventories dropped slightly (inverted axis) but has resumed climb later on and comparative oversupply reached 800 bcf

• Price is holding relatively high following the latest rollover. Taking into account a temporary drop in consumption as well as too low temperature for cooling season to start, a drop towards $2.00-2.20 area cannot be ruled out

• It should be noted that every major downward impulse on the natural gas market lasted between 14 and 24 months. Ongoing downward correction has been in play for 'only' 8 months so far, what may suggest that declines may still last for some time unless a major change in fundamentals occur

Futures curve suggests a drop in short-term demand for natural gas. Source: Bloomberg

Comparative inventories resume drop, what may resemble the situation from the turn of 2019 and 2020. Currently, production is too high for comparative inventories to drop. Source: XTB, Bloomberg

Price dropped slightly off yesterday's highs near $2.50 per MMBTu area. Should price continue to fall and drop below $2.38, an attempt at breaking below the lower limit of the upward channel cannot be ruled out. Source: xStation5

Platinum

• Net speculative positioning climbs into positive territory but is still far off extremely high levels

• Platinum exports in March dropped 50% MoM, what shows that there may be issue with availability of this precious metal

• ETFs have been selling out platinum holdings throughout 2022 but have been net buyers so in 2023. It could be a similar situation as at the turn of 2018 and 2019 or in mid-2020

• Increase demand for platinum may further deepen deficit on the psychical platinum market

Net speculative position on platinum is starting to increase noticeably. Source: Bloomberg, XTB

Cocoa

• Cocoa price climbed to the highest level since 2016 even in spite of an increase production outlook due to deforestation in Ivory Coast

• On the other hand, ports in Ivory Coast are still struggling with cocoa deliveries, driving prices higher

• Farmers from Ivory Coast sent 1.9 million tonnes of cocoa to ports between October 2022 and April 2023, meaning a drop of 5.0% YoY. One should remember that Ivory Coast is world's largest cocoa producer

• Demand data is mixed. The National Confectioners Association points that Q1 cocoa processing reached almost 110 thousand tonnes, what would be a quarter-over-quarter increase but also a 4% year-over-year drop. However, processing in Asia climbed 4% YoY to 222 thousand tonnes. European processing was 0.5% YoY higher at 373 thousand tonnes - the highest since Q1 1999

• Gepex, one of world's leading cocoa exporters and processors reported a 22% Yoy increase in cocoa processing, to 189.4 thousand tonnes

• There is a lot of uncertainty over crop quality and harvest size in Western African countries due to low availability of fertilizers and their high prices

• ICCO points in Q1 report that Ivory Coast exports dropped 9.3% YoY, to 530 thousand tonnes in October-January period

• One should notice that cocoa price gains since the beginning of the year have been extremely large rapid in terms of seasonality

• Positioning data suggests cocoa being relatively overbought

• Moreover, April-May period is the beginning of the so-called cocoa mid-season therefore one cannot rule out a period of profit taking once more detail forecasts for new season are released

Seasonal patterns show that ongoing price gains on the cocoa market have been extremely rapid. Source: Bloomberg, XTB

Speculative data shows that the number of open long positions is closing in on the highest level in history, similarly as it was the case in 2020. Back then, a quite noticeable correction was launched. On the other hand, net speculative positioning is still far off record levels. Source: Bloomberg, XTB

5-year seasonal patterns suggest that potential period of decline until July (similarly on the chart above). Nevertheless, current trend may continue should support in the $2,700-2,800 area hold. Source: xStation5

Wheat

• Wheat prices in the United States continue to drop after resolving issues with Ukrainian wheat

• An agreement was reached on exports of Ukrainian wheat, although it did not have an impact on Western European markets

• Wheat prices in Paris increased slightly at the beginning of a new week, to €235 per tonne. However, prices in Chicago (after EUR conversion) were closer to €214 per tonne

• Drop in US prices comes after improvement in weather, which improve production outlook. However, it should be noted that crop quality is very low in historical terms

• Only 26% of winter wheat is labeled as in 'good' or 'excellent' quality

• Net speculative positioning on US wheat is extremely low when we consider the past years but not as extremely low in historical terms

• Moreover, a 2008 situation is starting to materialize when prices dropped towards 400 cents per bushel area

Net speculative positioning on the wheat market is at the lowest level since 2018 but at the same time, it is not extremely low in historical terms yet. Source: Bloomberg, XTB