Commodity Wrap - Oil, Soybean, Sugar, Palladium (30.03.2021)

Oil

• Traffic in the Suez Canal has resumed after a week-long blockade. Clearing the waterway put a downward pressure on prices but crude ultimately managed to finish yesterday's higher

• Saudi Arabia wants current output cuts to be extended. Russia may oppose the idea

• It should be noted that the current 3 mbpd deficit is being supported by output cuts in Saudi Arabia. Saudi Arabia may be producing as much as 1.5 mbpd less compared to its normal production

• Decision whether to continue with a voluntarily 1 mbpd cut will be made on Thursday

• There is no imminent risk of Iranian crude returning to the market

Oil once again trades in an important technical spot, following a bounce off the $60 area. OPEC+ may potentially decide to at least temporarily bring back some production, what may push prices down towards the $63 area. Recovery from this area may result in an inverse head and shoulders pattern surfacing on the chart. On the other hand, dropping towards the $60 area may result in a double bottom pattern. Source: xStation5

Soybean

• Big drop in the US stockpiles driven by increase in domestic consumption and increase in exports to China

• If China continues to increase imports of US soybean, US stockpiles may get completely destroyed. Inventories already sit at extremely low levels

• US ending stocks remain at extremely low levels while stocks-to-use dropped to 5%

Fundamental situation in the United States signals that soybean prices may continue to rise on the back of limited supply. Source: Bloomberg, USDA, XTB

Bloomberg estimates point to further declines in corn and soybean stocks-to-use ratios globally. It means that the supercycle on those commodities may not have ended yet. Source: Bloomberg

Soybean may be heading for the first monthly drop since May 2020. Net positioning starts to fall from extremely high levels. Correction in 2011, started after record highs were reached and positioning reached similarly extreme levels, saw the price drop 1,800 cents per bushel, to a level of 1,350 cents per bushel. Source: xStation5

Sugar

• Sugar prices drops amid the latest correction on the oil market

• Lower oil prices leads to a lower demand for biofuels. This means that there is more sugar available for consumption

• Sugar trades below key price zone. Nevertheless seasonal patterns hint at potential price recovery in May

• This is related to commodity deliveries in Brazil as ports in the country are being used for soybean exports, lowering sugar exports potential

• Biggest sugar deliveries take place in May - in theory price may experience a deeper drop if there are no issues with deliveries or weather

• Moreover, following recent strong gains on the soybean market combined with cheap BRL, competitiveness of Brazilian soybean increased significantly. It may encourage some farmers to switch to soy

Recent declines on the oil market have a negative impact on sugar price. Moreover, BRL remains very cheap, what means that producers see no reasons to limit exports. Positioning remains very flat but resembles the situation from 2016, when a local high on the sugar market was reached. Nevertheless potential price recovery may take place in May, when delivery issues may become an important factor. Source: xStation5

Palladium

• Palladium makes massive $200 correction following recent price rally

• Upper limit of the previous half-year long trading range at $2,500 is a key support

• Pallad has experienced few long consolidation periods and the current one may be similar to the one from 2013

• Platinum remains a cheaper alternative to palladium, what may be a key factor in limiting further palladium demand increases

Recent price performance of Palladium may resemble what has happened exactly a year ago. On the other hand, fundamental situation seem to support higher prices. Source: xStation5

Nornickel hinted at palladium demand and supply balancing in 2021. On the other hand, mine floodings that happened this year may limit production of the company by 15-20%. Nornickel is the world's largest palladium producer. Traders should also keep in mind that potential issues may arise in South Africa just as it was a year ago (not only because of Covid-19 but also energy shortages). Source: Nornickel