Expect an extension on oil supply cuts, a lithium boom and strike struggles in the copper industry
What to watch in commodities: Opec, lithium and copper
Global crude markets will be centre stage this week in the final countdown to Opec’s next meeting. Traders will be alert for comments from the group’s members as well as Russia on whether supply curbs that have helped to hoist prices will be maintained. After posting back-to-back gains in September and October, Brent’s only a little higher this month.
Beyond Vienna, investors will have an eye on the weather, with Australian forecasters due to weigh in on whether La Nina conditions will set in. They’ll also scrutinise earnings from lithium powerhouse Sociedad Quimica & Minera de Chile (SQM) amid gathering excitement about the potential for electric vehicles. Staying in Latin America, there’s scope for further disruptions at copper mines. Here are five talking points that will be the focus of the commodities world this week:
The next Opec meeting is little more than a week away and the market is almost certain supply cuts will be extended. Saudi Arabia’s energy minister, Khalid Al-Falih, has said the group should prolong curbs at the November 30 meeting in Vienna, leaving no room for doubt as to the preference of Opec’s top producer. The key boost for the group since it last met in May has been Brent’s rise back above US$60 for the first time in more than two years as rebalancing starts to set in.
Despite that rise, the benchmark is edging back toward a bearish contango structure. With the market housing more bullish bets than ever, there’s a growing risk the meeting could disappoint. Russia was said to waver on whether an agreement needs to be reached next week and the Kremlin’s view is likely to be the key thing to watch in the run up to the event.
Rain or Shine?
US forecasters have just said a La Nina has formed, and this week provides a chance for meteorologists in Australia to have their say. The event - triggered by cooler Pacific waters and associated atmospheric shifts - has worldwide reach, delivering colder winters across the northern US, drought in parts of Brazil and lots of rain in Australia and Asia.
Australia’s Bureau of Meteorology, which issues its latest bi-weekly assessment on Tuesday, started a La Nina watch in October and said earlier this month the chance of it happening was 50-50. Commodity investors, especially in foodstuffs from soy to palm, will be on alert for any shift in those odds, as well as the scientists’ best stab at forecasting how powerful the La Nina will be.
All charged up
Tesla’s unveiling of its all-electric big rig last week provided an added boost to the outlook for metals used in batteries. As miners race to meet demand from electric cars, investors will be watching earnings from SQM for clues on the supply situation. The excitement over SQM’s bright prospects fuelled a rally that’s doubled its shares this year.
The Santiago-based company, one of the top lithium producers, has already attracted the attention of Rio Tinto Group. The London-based miner is said to be working with advisers on a bid for a 32 per cent stake in what could be its biggest acquisition since the $38 billion takeover of Alcan in 2007. Potash of Saskatchewan is looking to sell the holding to meet a condition by Indian regulators approving its merger with Agrium,
Just when you thought the copper rally is beginning to falter, along comes another labour dispute, with unions at Southern Copper set to strike in Peru at midnight tonight (Monday). Any disruption could further tighten supply in a market that’s already seen output trail demand in the five months to July. A six-week strike at Chile’s Escondida mine earlier this year helped fuel the deficits.
Southern Copper unions are not the only ones unhappy with wages and conditions in Peru, the second-largest producer of the mined metal. The Mining Federation, which represents several unions, is also threatening to go on strike after months of mediation failed to produce positive results. Federation leaders meet on Monday and Tuesday to decide on the next steps.
Bulls versus bears
Commodity traders and analysts surveyed by Bloomberg are most bullish on natural gas after first storage withdrawal of season left supplies well below the five-year average ahead of winter. They were, however, bearish on crude oil and copper.