Market volatility remains at extremely elevated levels as investors weigh the expected benefits of the recent fiscal and monetary stimulus measures against coronavirus and related economic uncertainties. On Wall Street, stock prices saw remarkable swings again last week as the Dow Industrials surged more than 2,100 points higher on Tuesday and more than 1,350 points higher on Thursday, although those gains were partially offset by losses on Monday (-582 points) and Friday (-915 points).
At the same time, the yield on U.S. Treasury notes fell from as high as 0.88% to less than 0.7% late in the week. Here’s a look at some of last week’s key commodity market developments:
WTI crude oil futures continued to be pressured lower last week towards $20 per barrel as plunging demand due to the coronavirus is being met with continued excess global supply. Reuters reports, “The price of oil is now so low that it is becoming unprofitable for many oil firms to remain active, analysts said, and higher cost producers will have no choice but to shut production, especially since storage capacities are almost full. “Global oil demand is evaporating on the back of COVID-19-related travel restrictions and social distancing measures,” said UBS oil analyst Giovanni Staunovo. “In the near term, oil prices may need to trade lower into the cash cost curve to trigger production shut-ins to start to prevent tank tops to be reached,” he added.”
With respect to the global steel industry, the latest IHS report is not encouraging: “The coronavirus outbreak had a dramatic effect on global users of steel in February, latest PMI data showed, with output contracting at the quickest rate in over 11 years, amid much weaker demand and a lack of workers in key Asian markets. Delivery times across the world lengthened to the greatest extent on record, while exports also deteriorated sharply… The seasonally adjusted Global Steel Users Purchasing Managers Index™ (PMI) – a composite indicator designed to give an accurate overview of operating conditions at manufacturers identified as heavy users of steel – fell to a post-financial crisis low of 45.5 in February, from 49.4 in January, signaling a sharp deterioration in operating conditions at steel users worldwide.”
Here in the United States, Argus Media reports the following production developments:
Last week Edward Meir from the Commodity Research Group at ED&F Man Capital, ISRI's Assistant Vice President, International Affairs Adina Renee Adler, and Aaron Rutstein from Atradius Trade Credit Insurance were kind enough to share their thoughts with us on what’s happening on the commodity, trade, and insurance fronts. You can listen to the podcast here.
In New York last week, COMEX copper futures plunged as low as $2.02/lb. in intra-day trading on Monday before stabilizing around $2.15-$2.20/lb. late in the week. Similarly, in London LME 3-mo. copper and aluminum closed last week at $4,815/mt (=$2.184/lb.) and $1,552.50/mt (=70.4 cents/lb.).
ABN AMRO reports that base metals’ “…supply and demand fundamentals have deteriorated sharply. End users in construction, mechanical engineering and automotive sectors have shut down facilities. This dampened demand, while output remained elevated. This means high availability in the short term and will keep prices relatively low during the second quarter of this year.” Here’s their price outlook going forward:
Source: ABN AMRO Commodities, March 2020
Recovered Paper & Fiber
Our friends at Fastmakets RISI reports that recovered paper prices in the U.S. are surging across a wide range of grades: “As market players predicted last year, the low pricing and landfilling in 2019 has led to supply concerns and pricing pickups. In first-quarter 2020, demand for US recovered paper has picked up again after slumping demand last year. Recovered paper pricing has increased this first quarter along with demand. Mill demand has been steady so far this year, with one contact in the US Southwest seeing "a scramble for fiber by domestic mills, and export to Mexico, that is unprecedented." Several contacts told of strong old corrugated container (OCC) demand with increased price premiums this week in the USA, especially in the South…
"The scramble is effecting paper grades up and down the entire food chain -- from mixed paper to hard white. OCC is now selling to domestic mills well in excess of $110/ ton FOB in many markets across the country," a contact said.”
They go on to report, “If US mills follow China's lead in response to the coronavirus, collections could soon cease, and mills could shut down or slowdown in response. Nine Dragons Paper, one of the largest paper and board manufacturers globally, was forced to slow its mill machines due to the virus, among many Chinese mills. US mills increased recovered paper consumption by 8% and 185,600 tons in February 2020 vs February 2019, as well as increased OCC consumption by 11% and 174,900 tons, according to the American Forest & Paper Association (AF&PA) statistics.”