Commodity Wrap - Soybean, Sugar, Oil, EMISS

In this week’s commodity wrap we present you 4 markets that look interesting or/and have posted some major price moves: Soybean, Sugar, Oil, EMISS

Soybean:

• Moderate recovery during this month after price action in the vicinity of 840 cents per bushel handle

• Inverse head and shoulders pattern on the W1 interval, potential rally towards the 950 cents per bushel handle

• Federal data showed that soybean sales to China dropped by 94% in comparison to previous crop season

• More than a half of the US soybean was sold to China until now

• China began to buy more Brazilian soybean, European countries start to buy more US grain

• Farmers may switch to corn or even wheat

• US soybean is so cheap that Canada prefers to import grain from the US and sell its own crop to China

• BRL strengthening lowers competitiveness of the Brazilian soybean - divergences begins to fade

Divergence between the US and Brazilian soybean prices begins to fade. However, China will still be forced to buy the US grain in the long run. Additionally, one should keep in mind that moods may improved ahead of the G20 summit where Trump and Xi are expected to meet. Source: Bloomberg

Soybean exports in the current season dropped significantly. Fundamental situation seems to be played down because of trade tensions. Source: Bloomberg

Soybean prices enjoy strong recovery this month. Taking a look at the past performance rally towards the 850 cents per bushel area cannot be ruled out. Source: xStation5

Sugar:

• Brazilian real strengthened following Bolsonaro’s victory in the presidential elections run-off

• Economic agenda should boost BRL further over the medium and long term

• Democrats win in the House of Representatives may alter direction of the US politics to more interior one, what could boost EM currencies

• From the technical point of view declines should not surpass the 12.50 cents per pound handle

• Fundamental situation on sugar remains negative, rumours surfaced that farmers in India and neighbouring countries are dissatisfied over delayed payments for sugar cane

Potential increase of the Brazilian sugar prices could spur recovery on the global sugar market. Source: Bloomberg

BRL has significant impact on sugar and coffee prices in short and medium term. Possible further declines in the short term and subsequent recovery over the longer term. Source: xStation5

Oil:

• A drop in the Iranian oil exports reached almost 40% since the local peak in April

• Pompeo defends sanction waivers saying that oil exports dropped by more than a million barrels per day already

• South Korea - allowed to import 200k barrels per day from Iran, earlier 300k per day, South Korea did not import any Iranian crude in September in fear of sanctions

• India - allowed to import 300k barrels per day from Iran, average for the last 10 months: 560k barrels per day

• China - allowed to import 360k barrels per day from Iran, average from the previous year: 660k barrels per day

• Japan - earlier imported around 160k barrels per day

• Taiwan - earlier imported 16k barrels per day

• Build in the US inventories was mainly caused by small implied demand from refineries

• High exports, stable production, very high implied demand for fuels

• OPEC is expected to discuss potential production cuts in 2019 during the next meeting

Oil prices dropped in response to huge build in the oil inventories and smaller than expected impact of Iranian sanctions. Source: Bloomberg, XTB Research

The US exports remain at elevated levels, imports near lows from the previous years. Source: Bloomberg, XTB Research

Implied demand for crude from refineries dropped significantly recently and begins to recover. Implied demand for gasoline and distillates in the US near multi-year highs. Source: Bloomberg

CO2 emission contracts (EMISS):

• A decent drop in the CO2 emission contract prices in the past couple of weeks lowered risk of potential market crash in December, when in theory demand should be the largest

• Low prices result in smaller amount of in-the-money options, what lowers the risk of liquidating long positions

• A rebound in prices may be looming in the medium term, weather factors and coal prices should be watched in the short term

• Hot weather and drop in coal prices may exert further downward pressure in the short term

According to the European Centre for Medium-Range Weather Forecasts we may expect a relatively high temperatures in the upcoming two weeks what lowers demand for energy production in Europe. Source: Bloomberg

EMISS prices rebounded in the past couple of days. Nevertheless, further upside may be limited by few technical resistance levels lying ahead. Recently broken upward trendline and the upper limit of the downward price channel are the closest ones. A moderate pullback cannot be ruled out in the medium term as high temperatures in Europe lower demand for energy production. Source: xStation5