Commodity markets in 2020
The mystery behind rising iron ore prices
Over the past couple of months, the steel industry has witnessed constant dialogue between iron ore miners and steel producers, aimed at reaching common ground on the availability of a key commodity for manufacturing steel—iron ore. While manufacturers of the alloy have gone up to the Prime Minister’s Office (PMO) seeking a ban on exports of iron ore citing sky-high prices, miners of the key raw material—whose pellets form about 60 percent of the cost of production of steel—claim that steel mills have been importing iron ore to suppress prices of the commodity despite huge stockpiles lying idle. Both sides have made sure to supplement their claims with data. Industry associations, including the All India Induction Furnaces Association (AIIFA) and the Indian Steel Association (ISA)—representing both secondary and primary steel makers—have written separate letters to the PMO batting for a ban on iron ore exports. Over April-July 2020, India’s exports of iron ore have risen by a massive 63 percent. This rise in exports is primarily fuelled by record steel production by the world’s largest steel manufacturer—China. Chinese steel output hit all-time highs in September, as state-backed investment in infrastructure projects took centre-stage amid the nation’s resurgence from the pandemic.
Grain market review: wheat
Wheat prices have been firm around the world with strong demand, notably because of the feed needs of the EU and China, coming up against concerns over unfavorable weather for production. The resurgence of the coronavirus (COVID-19) pandemic, along with the imposition by many governments of renewed lockdown measures has raised further uncertainties about how demand will develop. The US Department of Agriculture’s Foreign Agricultural Service (FAS) said in its Grain: World Markets and Trade report, published Nov. 10, that world wheat prices remained firm this month, mostly due to dry weather impacting the start of the growing season in the Northern Hemisphere and unfavorable production conditions in Argentina. Strong global export demand drove further price spikes in Canada, the European Union, Russia and the United States, demonstrated by robust export sales reports this month, the FAS said. Concerns about the rise in COVID-19 infections worldwide and recent rains in Russia and the US Plains softened price increases more recently. In its Wheat Outlook, published on Nov. 13, the USDA’s Economic Research Service put global supplies of wheat in 2020-21 at 1.073 billion tones, up 700,000 tons from its earlier estimate, despite a small cut in production, because of an increase in carry in.
China’s energy dependence to grow despite major oil discoveries
Energy independence is an important precondition for any country which allows for relatively unbound foreign and economic policies. China’s growing reliance on imports concerning fossil fuels is a major headache for Beijing. Therefore, increasing domestic production is high on the agenda. Despite some successes in exploration and production activities, import reliance is expected to rise over the next couple of years. Beijing has instructed its three domestic energy champions PetroChina, CNOOC, and Sinopec, to increase spending on domestic resources. In the next five years, these companies have vowed to invest 517 billion yuan ($77 billion), which is a growth of 18 percent year-on-year. These investments have already achieved reversing falling domestic oil production. According to the U.S. Energy Information Administration (EIA), the production of petroleum and other liquids in China has increased to 4.9 million barrels per day (mbpd). Despite the increase, foreign oil dependency has reached 70 percent and the number is expected to grow.
New disease threatens India’s milk production
Lumpy skin disease (LSD), a transboundary animal disease that spreads quickly, has started affecting Indian cattle and Asian water buffalo. The disease can decrease milk production by more than half, damage hides and cause emaciation, infertility, and abortions in animals. It has spread to 20 of India’s 28 states, putting at risk more than 303 million cattle and buffaloes that drive India’s milk production. Characterized by skin nodules, nasal and ocular discharge, fever, and reduction in milk production, the diseases was first detected in India in July 2019. India is the largest milk producer in the world, with an annual production of 187 million metric tons in 2018-19, about 22 percent of the world’s annual milk production, followed by the United States, China, Pakistan and Brazil.
China suffers widespread blackouts amid coal supply shortage
Provinces across China are reportedly grappling with crippling power shortages prompted by a surge in power demand from a stunning ramp up in industrial activity, an especially harsh winter, and tight coal supplies, which may be exacerbated by a ban on Australian coal. Power shortages have been reported in Zhejiang province, an economic powerhouse in eastern China; the southern provinces of Hunan and Jiangxi; as well as in Shaanxi province in the northwest and Guangdong province in the southeast. In recent weeks, according to sources, more than a dozen Chinese cities in these provinces have imposed restrictions on power use, and some directives, such as in Wenzhou and Yiwu in Zhejiang province, are forcing factories to scale back production. Some provinces are facing regional conditions, such as in Hunan, where wind turbines were frozen by a cold snap earlier this month. In Guangdong, a province that gets a quarter of its power from the massive Three Gorges Dam and nearly half from coal, equipment failures turned out the lights in industrial cities Dongguan, Shenzhen, Foshan, and Zhuhai, as well as Baiyun district in the provincial capital on Dec. 21. The Post and other media outlets pin part of the problem to an extraordinary surge in power demand. Reuters reported that across China in November, power consumption rose 9 percent from a year earlier. The Post noted that from January to November, China consumed 6,677.2 billion kilowatt-hours (kWh) of electricity, more than the annual totals for 2017 and 2018.