Commodity Markets In 2020
Polish coal industry
The coronavirus has ripped through Poland’s coal mines, where men descend deep underground in tightly packed elevators and work shoulder-to-shoulder to extract the source of 75 percent of the nation’s electrical power.
Of Poland’s more than 36,000 reported COVID-19 cases, about 6,500 are miners – making them nearly a fifth of all confirmed infections in the country, even though they make up only 80,000 of the country’s population of 38 million.
The virus hot spots, centered in the southern Silesia region, have paralyzed an already-troubled industry, forcing many to stay home from work and triggering a three-week closure of many state-run mines that are only now reopening.
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South Korean rice production
Rice production in South Korea is now estimated to reach 3.86 million tonnes, up 3 percent from the initial forecast, due to a higher-than-expected planted area, according to a June 29 report from the Foreign Agricultural Service of the US Department of Agriculture (USDA).
Despite the government’s attempt to reduce rice paddy area, farmers still have a preference for growing rice because its pricing is subsidized.
Rice area is estimated at 728,000 hectares, only 0.3 percent down from the previous year.
For imports, COVID-19 related logistical issues are expected to increase the portion of 2020 tariff-rate quota (TRQ) delivered in the first half of 2021, the USDA said.
As a result, 2020-21 rice imports are revised upward to 500,000 tonnes and 2019-20 imports are expected to decrease.
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Iron ore extends gains
Iron ore futures extended gains on Tuesday as doubts lingered over prospects of a recovery in shipments from Brazil, while a rally in China stocks and industrial metals also revived market sentiment towards the steelmaking ingredient.
Iron ore on the Dalian Commodity Exchange rose for a third straight session, closing 2.7 percent higher at 767 yuan ($109.23) a tonne. Iron ore on the Singapore Exchange climbed 2.1 percent in afternoon trade.
The Chinese stock market extended its positive run, in line with Beijing’s push for a stronger market.
Iron ore remains supported on both the supply and demand sides, some analysts said, with spot prices range-bound above $100 a tonne.
“Iron ore supply remains tight with the second-largest producer, Brazil, underperforming guidance,” said Justin Smirk, senior economist at Westpac Economic Research in Sydney.
“Brazil has become the global epicentre for the COVID–19 outbreak and it is starting to have an impact on iron ore miners.”
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He singled out miner Vale SA, which has been struggling to regain lost production after a tailings dam disaster last year and disruptions due to a rising tally of coronavirus cases.
Iron ore shipments to various destinations from Australia and Brazil dropped 7.6 percent over June 29-July 5 from a week earlier to 26.3 million tonnes, after rising steadily for three weeks, according to consultancy Mysteel’s latest survey.
“With optimism surrounding China’s infrastructure program and resilient housing sector, Chinese demand is likely to absorb most of the shortfall in iron ore demand from the rest of the world,” Smirk said in a note.
Construction steel rebar on the Shanghai Futures Exchange gained 0.5 percent, hot-rolled coil rose 0.8 percent, and stainless steel climbed 0.7 percent.
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World’s biggest oil importer
When the bottom fell out of international crude oil markets earlier this year, global oil storage was at a premium. In the United States, finding sufficient crude oil storage became such a challenge that the West Texas Intermediate crude benchmark plummeted below zero on April 20, ending the day at -$37.63 per barrel, meaning that you would essentially be paid $40 to take a barrel of oil off of someone’s hands. China, however, soon busied itself stocking up on cheap oil, to the extent that Beijing played a key role in the global oil market’s recovery by helping to buy off a significant portion of the world’s severe oil glut. This is not to say that China’s government was alone in taking advantage of historically low oil prices or buying up oil in an attempt to salvage their own struggling energy sector. Back in March, the United States government pledged to support domestic oil producers by buying 30 million barrels of oil for the nation’s Strategic Petroleum Reserve. “But analysts said that China’s stockpiling dwarfs what other nations have done in response to cheap prices,” writes CNN. Matt Smith, director of commodity strategy at ClipperData, told CNN’s reporters that “China is the only country that has been buying like crazy. They went out and bought the dip.”
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Natural gas price forecast
Natural gas markets have rallied a bit during the trading session on Tuesday, reaching the $1.90 level. The $2.00 level above will be the target eventually, so I think that is something worth keeping in the back of your mind. Because of this, I remain bullish in the short term, but I recognize we may need to pullback after a 10 percent rise over the last couple of days.
Keep in mind that the natural gas markets have been looking for a reason to rally for ages now, and now that we have more demand and perhaps even more importantly, more bankruptcies, the supply/demand ratio could start to look a little bit better. With that being said, the market is likely to continue to see bullish pressure, but clearly, we cannot go in one direction forever. It is because of this that I fully anticipate some type of pullback, it would be extremely interested in trying to buy natural gas near the 50 day EMA again.
Just above, the $2.00 level offers the 200 day EMA which will of course attract a lot of attention, it should be a bit of a resistance barrier. This moving averages one that followed by a lot of longer-term traders, so it would make sense to see some selling in that area. After all, longer-term natural gas has major issues due to the oversupply issue, so I do not know that this is a massive trend change, but a repudiation of the $1.50 level which has been massive support multiple times over the years.