Thursday, April 22, 2021

Iron ore price surges to 10-year high after Vale, Rio miss on output

Iron ore price soars to ten-year high on improving steel margins and disappointing output

Port of Qinqdao, China. Stock image. 

Port of Qinqdao, China. Stock image.

Iron ore prices jumped more than 4% on Tuesday, extending gains spurred by improved steel profit margins in China and disappointing output figures from Rio Tinto and Vale.

According to Fastmarkets MB, Benchmark 62% Fe fines imported into Northern China (CFR Qingdao) were changing hands for $189.61 a tonne on Tuesday, up 4.29% from the previous day – the highest level since 2011.

The high-grade Brazilian index (65% Fe fines) also advanced to a record high of $222.80 a tonne.

September iron ore on China’s Dalian Commodity Exchange ended the daytime trading session 3.6% higher at 1,100 yuan ($169.28) a tonne, following news that China’s crude steel production jumped 19% last month from a year earlier to near a record.

The nation’s output of the alloy is booming at the same time as a pollution crackdown has lifted prices and benefited profit margins at mills.

“The short-term outlook for iron ore prices remained strong”

Daniel Hynes, senior commodities strategist, ANZ Banking Group

“Incredibly healthy Chinese steel margins have been the real driving force behind iron ore’s move higher over the past week,” managing director at Navigate Commodities in Singapore Atilla Widnell told Reuters.

Rio Tinto’s iron ore output in the March quarter dropped 2% on an annual basis, while production at Vale fell 19.5% from the previous quarter.

BHP Group Ltd on Wednesday reported a near 2% dip in third-quarter iron ore production but said full-year output is expected to be at the upper end of its forecast.

“With the market relatively tight at the moment, it will certainly see any failure to meet current guidelines as relatively positive for the price,” Daniel Hynes, senior commodities strategist at ANZ Banking Group told Bloomberg.

Vale and Rio both maintained their forecasts for full-year production, though a slower-than-expected recovery at Vale could see the market reset its expectations, he said.

Rio cautioned that its guidance for the annual output of up to 340 million tonnes was subject to logistical risks associated with bringing 90 million tonnes of replacement mine capacity on stream. It also said that Tropical Cyclone Seroja had impacted its Pilbara mine and port operations in April.

It was a “mediocre quarter” for Rio, Tyler Broda, mining analyst at RBC Capital Markets, said in a note. Quarterly production was 6% less than the bank’s estimate.

“Not all that much is going in the right direction from a bottom-up basis for Rio Tinto as they continue to tackle the various challenges at their operations and projects, but main commodities iron ore and aluminum are both benefiting from the China decarbonisation theme,” Broda said.

The iron ore market has kept a wary eye on the still-tight global supply in the wake of a Vale tailings dam disaster in 2019 that had prompted mine closures for safety checks in Brazil.

However, real-time shipping data showed an improvement in cargo volumes from the world’s top suppliers. Iron ore shipments by Australia and Brazil recovered last week after two weeks of declines, according to Mysteel consultancy.

The short-term outlook for iron ore prices remained strong, ANZ’s Hynes said, with Chinese steel mills content to accept current high prices for their main feedstock while their margins were so strong. However, he added the cost of ore was now well above fair value, with the risk of a pullback later in the year if Beijing’s plans to curb steel production to control greenhouse gas emissions start to impact demand.

“If we saw a 1% fall in Chinese steel production that would potentially wipe out about 15-20 million tonnes of iron ore,” said Hynes.

(With files from Reuters and Bloomberg)

Wednesday, April 21, 2021

The Impact of changing supply and demand balances on tank terminals

 The world’s hottest storage hotspots

As the world is slowly emerging from the Covid-19 pandemic, it is safe to say that the corona virus has had a profound impact on nearly every aspect of our daily lives. Besides the more visible effects on public health, society, and transportation, Covid-19 also sent a shockwave through the global economy.

This shockwave also had its effects on tank terminals: As soon as the true scope of the Covid-19 pandemic became apparent, the oil market shifted from a backwardated market into a deep contango. Needless to say, this contango immediately led to a significant increase in demand for tank storage.

The road less traveled?

The demand for road and jet fuels has been affected most by the Covid-19 pandemic. While the short-term effects of national lockdowns on demand for fuels are relatively straightforward (fuel consumption is strongly linked with people’s mobility patterns), it will be the longer-term effects that are the most interesting to keep an eye on.

Large corporations like banks, IT companies, and insurers are already preparing for a ‘new normal,’ where their staff will work more from home after Covid-19 than they did before (source). As people will commute less to their offices, a decline in overall car traffic volume could be expected. Together with the ongoing electrification of road vehicles, we expect that the current surplus for gasoline will increase further.

When we take a look at diesel consumption, reversed dieselization of passenger cars will lead to a faster decline than we will see for gasoline. That being said, because the electrification of trucks is not expected to happen in the coming years, there will still be a large volume of diesel consumption left. 

For jet fuel, we forecast that the current deficit for North-Western Europe will grow at a slower pace. While it is expected air travel will largely recover, analysts forecast it will take at least towards 2023 until air travel is back at pre-pandemic levels (source).

Electric vehicles

Over the past few years, the market for electric mobility has seen incredible growth. In 2019, the global electric car fleet exceeded 7.2 million, up 2 million from the previous year. With more and more electric car models being introduced to the market and charging infrastructure improving, this strong growth is only expected to increase. The IEA estimates that by 2030, there will be over 250 million electric vehicles (excluding three/two-wheelers) on the world’s roads. According to the IEA, the projected growth in the Sustainable Development Scenario of electric vehicles would cut oil products by 4.2 million barrels/day. (source)

While battery electric vehicles (BEVs) are considered the preferred solution for short-distance and light vehicles (passenger cars, delivery vans) because of their high energy efficiency, their batteries have a limited energy density compared to traditional fuels. This means that for vehicles with high power demands, such as ocean liners, long-haul trucks, and airplanes, batteries are highly impractical. 

Alternative fuels

With an energy density that’s comparable to fossil fuels, e-fuels and green hydrogen are poised to play a crucial role in our transition to sustainable mobility. E-fuels are produced by electrolyzing water, creating hydrogen and oxygen. While hydrogen gas in itself is an excellent renewable energy carrier, it can be synthesized further with carbon dioxide or nitrogen into more stable and easier to handle e-fuels. When using electricity from renewable sources and circular carbon dioxide (such as direct capture from the air), net emissions are close to zero.

While this process’s overall energy efficiency is lower than that of chemical batteries used in BEVs, the much higher energy density of e-fuels makes them much better suited for applications with high power demands, like shipping, trucking, and aviation.

Circular economy

As the call for reducing plastic waste gets louder and louder, the concept of circular economy is gaining traction. While the market for recycled plastics is growing rapidly and will have its effect on the demand for chemicals, it is not foreseen yet that consumption of virgin material will decrease the coming years.

What’s next?

It is clear that both the covid-19 pandemic as well as the transition to sustainable fuel sources will greatly impact the tank storage terminals. The market outlook for the oil and chemical industry will see significant shifts in supply and demand, while the Covid-19 pandemic only adds further complexities to the market. That’s why market intelligence should be on the radar of every terminal operator. During our regular Market Update webinars, we offer our expert outlook on supply, demand, and trade flows and their impact on tank storage demand. 

Tuesday, April 20, 2021

Glencore faces shareholders revolt over CEO’s pay

 Glencore shareholders revolt over CEO’s pay

Gary Nagle. (Image: Glencore | Twitter.) 

Proxy adviser Glass Lewis, one of Glencore’s (LON: GLEN) top shareholders, is pushing investors to vote against the company’s plans to pay its new chief executive Gary Nagle up to $10.4 million.

In a report for clients, Lewis said it was concerned that the remuneration package for Nagle was “excessive for a newly appointed CEO with no previous experience of running a publicly listed company.”

Glencore announced in December that Ivan Glasenberg, its long-serving CEO, was to step down this year and be replaced by Nagle, who was head of its coal mining business.

The Swiss miner and commodities trader group has only had three chief executives since founded in 1974. Glasenberg had received a flat annual salary of $1.5 million since Glencore listed in 2011, so Nagle will be the first subject to a conventional pay arrangement. The bulk of his remuneration, however, would from short and long-term incentive schemes.

Nagle, who is set to take over Glasenberg at the end of June, is effectively set to receive up to $6.4 million in any one year, as 40% of his bonuses will be held back until two years after he leaves post. This ignores any share price changes, distributions or share awards.

“We consider a base salary of $1.8 million in conjunction with a short-term incentive opportunity of 250% of salary and an RSP opportunity of 225% of salary, to be excessive,” Glass Lewis said.

Glencore had said in its latest annual report it considered Nagle’s proposed remuneration to be sensible and aligned with shareholder interests.

Climate goals

Another bone of contention Glencore faces at the upcoming annual general meeting, scheduled for April 29, is to obtain approval for its newly set emissions targets.

The firm revealed in December an ambitious plan to reach net-zero emissions by 2050 through reducing its direct and indirect carbon footprint by 40% by 2035, compared to 2019 levels.

Glencore, one of the world’s largest coal producers, also said it would focus on investing in metals considered “vital” for the transition to a lower carbon world.

While the company noted that thermal coal’s weight on the group’s earnings has dropped between 10% and 15%, from 25-40%, it said it did not believe that selling its coal mines would help reduce associated emissions.

The company has already made some concessions. It promised last year to cap coal production, not to make any further coal acquisitions that would add to overall output, and to align its business strategy with Paris climate targets.

Glencore, also a major cobalt and copper miner, has highlighted its current exposure to those two metals, which are essential in the production of electric vehicles batteries and renewables.

Both the CEO pay scheme and the “greener” objectives are just some of the challenges Glencore needs to overcome. The company faces pressure on multiple fronts, including corruption probes, pollution accusations, and a share price that has lost half its value over the past decade.

Friday, April 16, 2021

Efforts Underway for Release of Iranian Tanker Seized by Indonesia: Spokesman

Efforts Underway for Release of Iranian Tanker Seized by Indonesia: Spokesman 

TEHRAN (Tasnim) – Tehran is proceeding with efforts for the release of an Iranian oil tanker that was seized in Indonesian waters in January, the spokesperson for the Iranian Foreign Ministry said.

Saeed Khatibzadeh said on Saturday that consultations are underway for the release of the Iranian oil tanker ‘MT Horse’.

“The case is being pursued by engaging a lawyer and through legal proceedings, and will continue until achieving the final result,” he noted.

The spokesman said “extensive investigations” suggest that the Iranian-flagged oil tanker has not committed any violations.

“Therefore, the authorities of the friendly state, Indonesia, are expected to take action for the immediate settlement of the problem,” Khatibzadeh stated.

Indonesia’s coast guard seized the Iranian-flagged MT Horse and the Panamanian-flagged MT Freya vessels over suspected illegal oil transfer in the country’s waters on January 24.

Indonesia’s coast guard spokesman claimed the two tankers concealed their identity by not showing their national flags, turning off automatic identification systems and did not respond to a radio call.

Thursday, April 15, 2021

Copper price scales $9,000 after Goldman calls it the new oil

Copper price scales $9,000 after Goldman calls it the new oil

Copper resumed its rally on Wednesday, as analysts and executives expect increasing demand and likely low supply to drive prices even higher.

Copper for delivery in May was up 2.51% in afternoon trade, with futures at $4.1310 per pound ($9,088 a tonne) on the Comex market in New York.

Click here for an interactive chart of copper prices

The industrial bellwether metal is crucial in the global push for a greener economy, and right now, the market is facing a supply crunch.

US’s post-pandemic recovery and the Biden Administration’s infrastructure plan are helping to build momentum for base metals.

Goldman Sachs sees prices average $11,000 per tonne over the next 12 months, according to the Business Insider. By 2025, the metal could be priced at $15,000 a tonne, a rise of 66%, Goldman said in a report titled “Copper is the new oil”.

“Discussions of peak oil demand overlook the fact that without a surge in the use of copper and other key metals, the substitution of renewables for oil will not happen,’ the bank said.

Demand will therefore significantly increase, by up to 900% to 8.7 million tonnes by 2030, the bank estimates. Should this process be slower, demand will still surge to 5.4 million tonnes, or by almost 600%.

BHP president of minerals for the Americas, Ragnar Udd, expressed his optimism for a growing demand in the future at the CRU World Copper Conference in Chile.

“A great example is electric vehicles. Policy signposts for rapid electric vehicle (EV) adoption were distinctly favourable over the last (12) months and we have revised our internal EV penetration forecasts upwards,” he said.

“These vehicles use four times as much copper as petrol-based cars, and they will also need more infrastructure to connect charging stations to the grid.”

BHP expects the world’s Paris-aligned emissions reduction targets to more than double the demand for copper and quadruple for nickel over the next 30 years.

“It’s all copper, copper, copper, copper, copper, copper,” said mining magnate Robert Friedland during the CRU World Copper Conference.

Mining companies will have to be “real heroes” and governments will need to accept the industry if the world is to successfully transition to clean energy and transport, said the co-chairman of Ivanhoe Mines.

Goldman Sachs metals strategist Nicholas Snowdon says environmental policies will drive a capex boom on par with the 1970s and 2000s over the course of the next decade and copper is the core of the green energy transition.

“We estimate nearly $16 trillion would have to go into green-focused infrastructure to achieve decarbonisation targets, compared to just $10 trillion in China during the last supercycle.” said Snowdon.