Hot Commodity Edition 14: Venezuela Heavy
Don’t you hate it when you come back from the holidays and you’ve lost $80 million? A BNP trader reportedly left an S&P futures position open over the holidays and, as of lastweek, had not reported back to his desk.
Today we’re giving a quick update on a few of our markets and exploring a few others we find interesting.
Hemp Market Data
We’ve got some exciting things happening in the hemp market. Click below to get the updates.
In the frac sand market, we’ve expanded our pricing and data offering to include three additional indices for FOB Wisconsin, the origin of northern white sand. With the continual opening of sand mines located much closer to the major oil basins and the standardization of spot markets, optionality related to quality and location is becoming more important.
Frac sand costs make up around 25% of the total cost of a well, and proppant data is a forward indicator of futures oil and gas production.
Click below for more information on PanXchange frac sand pricing.
Venezuela’s Heavy Crude
The pressure on the Maduro government of Venezuela continues to build. U.S. State Department officials and diplomats have called Maduro’s government illegitimate, with an official statement from the president recognizing the President of the Venezuelan National Assembly, Juan Guaido, as the Interim President. Administration officials also signaled that further sanctions could be imposed by as early as this week. The UNHCR estimates that 3 million Venezuelan nationals have fled the country thus far. Many of those citizens abroad are now protesting the government and supporting the opposition, the National Assembly.
But one group has been hesitant about increasing pressure and ushering in the repercussions of a collapse of the state: U.S. Gulf Coast refineries.
With the light, tight shale revolution in the U.S., the average API gravity of crude processed in the U.S. increased substantially (see chart). The problem is that U.S. refiners, particularly in the GC, are not designed to process this lighter crude slate. And Venezuela is a main supplier of the heavy crude oil needed to lower that average API to the level refineries need.
Increased pressure from outside forces and the potential collapse of the Maduro government could shutter all Venezuelan exporters of heavy crude blends. But with exports already at multi-year lows and trending lower, while equipment and facilities in the oilfields continue their further spin into disrepair, a collapse and the installment of a new government more welcome to outside, private institutions could be more positive for long-term output.
The South Africa maize harvest has repercussions for markets across the entire continent. Most of South Africa’s neighboring countries are maize-deficient countries, causing them to import the difference in production and local consumption. And with maize harvest recently being particularly volatile — 2016 saw over 100% increase year over year — markets across the region have experienced similar volatility.
So what are the projections this year? The latest USDA FAS projections from December showed, “South Africa’s 2018/19 corn production is forecast at 12.0 million metric tons (mmt), down 1 million tons from last month (8 percent) and down 1.5 mmt (11 percent) from last year.”
The rains have been slow since the December update, so it’s likely that projections will decrease again in the next release. Should they drop below 10mmt, it’s likely that South Africa will be bidding for corn on the global market.
If that happens, maize which typically lands in the major East African demand hubs of Nairobi, Kampala, and Dar es Salaam will make their way south. Thus far, prices have remained relatively low in Nairobi, with this week’s pricing for Maize at $241/MT. Should the rains in South Africa continue at the slow pace, pricing across all of eastern and southern Africa should strengthen.
Sustainable Palm Oil
Palm oil is not a topic you want to bring up at a party. People get heated about the deforestation of some of the most diverse ecosystems on earth. So the Roundtable on Sustainable Palm Oil came up with standards for sustainable palm oil and production boomed. The problem is that not as many buyers want it.
Production of sustainable palm oil reached 13.6 million metric tons this year, around 20% of the global output, but much of that is being sold to regular streams as the costs for sustainable certified palm are too high for many buyers.
Food companies in the West, including Mondelez International, Inc., and Nestle SA, are the leaders in embracing sustainable palm oil. But demand in China, India, Malaysia, and Indonesia remains low to nonexistent.
In previous editions of Hot Commodities, we’ve spoken quite extensively about problems related to the battery-metal supply chain, particularly with cobalt, as around 60% of the global supply comes from the DRC. Ford, IBM, LG Chem, and Huayou Cobalt, overseen by RCS Global, announced a blockchain pilot project to try to track cobalt supplies from the mine all the way through to the electric vehicle on the road.
The project aims to tag every bag of ore with a hash on the blockchain, and track that hash all the way from the smelter, to the battery producer, to the individual vehicle. But with so many hands touching the product as it travels all the way across the heart of Africa to China, this is a tough task for any software solution.
Some great comments on the lofty proclamations of blockchain startups when they hit the ground and face the reality of building a business.