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What to watch in commodities: Iran deadline, oil, gold, Arcelor

Oct 29 2018 08:41
Jake Lloyd-Smith, Mario Parker and Susanne Barton, Bloomberg

Energy matters will dominate proceedings for commodity investors this week. It’s the last few days before US sanctions on Iranian oil flows snap back into place on November 4, the Khashoggi affair is far from concluded, and earnings season is in full swing. With oil leading gainers among raw materials this year, there’ll be reports from BP, Royal Dutch Shell, Exxon Mobil Corp and Chevron Corp, as well as Asian heavyweights.

The big hitters in metals will be out in force, too. In gold, the London Bullion Market Association is meeting up in Boston to weigh the outlook just as festival season in India provides a litmus test for demand. For base metals, the world’s top miners hit Melbourne to address a major conference and assess policy. And among the other earnings highlights, watch for numbers from agriculture trader Bunge on Wednesday and steel giant ArcelorMittal the day after.

Before getting stuck in, a couple of other items demand a mention. In the US, it’s the final stretch before the November 6 midterms, with control of Congress up for grabs. The trade war with China may feature as an issue on the stump. And finally, former army captain Jair Bolsonaro just swept to victory in Brazil’s presidential election, marking a pivot to the right that promises to open up the resource-rich economy. Early signs showed investors applauding the result.

Six of the best

Crude leads the gainers this year among raw materials, and that means Big Oil has a pleasant problem to confront: how to spend all that extra cash. In Europe, BP will report third-quarter earnings on Tuesday, with investors looking for details on assets sales of about $6bn to fund new buybacks. Shell follows on Thursday, with a key focus being Chief Executive Ben van Beurden’s commitment to a capital budget of $25bn to $30bn.

Over in the US, Exxon and Chevron will be hoping to bounce back after a rocky first half. Exxon, which has missed earnings estimates the last three quarters, will have to show how it plans to arrest alarming short-term production declines while Chevron investors will be hoping for more than last quarter’s mediocre buyback. And in Asia, expectations will be high for earnings from China’s top producer PetroChina on Tuesday, while refiner China Petroleum & Chemical Corp provides further details on the same day.

Precious thoughts

After a torrid run, bullion perked up in the past month by refreshing its role as a haven, and this week will provide signposts on what may come next. Members of the London Bullion Market Association are meeting in Boston through Tuesday, and among the hot topics to be discussed is the prospect of using blockchain and other technology to stop the trading of so-called “blood gold”, or the metal used as a financing tool for South American guerrillas, armed African rebels and drug traffickers.

At the same time investors will have an eye on the bazaars of India, the world’s second-biggest market, with buyers heading to the shops for Dhanteras, the most auspicious gold-buying day of the year, which falls on November 5. Just when jewelers were expecting demand to sparkle ahead of the festival of Diwali, local prices have jumped to a two-year high. Also of note, the World Gold Council releases its quarterly review of global trends on Thursday.

Navigating the trade war

Bunge’s third-quarter earnings due on Wednesday may provide investors and market watchers with a fresh view of how one of the world’s biggest agricultural traders and its competitors are navigating the trade war between the US and China. Last quarter was particularly important for Bunge, the world’s largest soybean processor. The White Plains, New York-based company has promised investors that it’s second-half performance will be better than it’s lackluster first-half.

Its shareholders are antsy. On October 8, Bunge, the subject of takeover speculation over the past year, said that it’s been engaged in dialogue with D.E. Shaw and Continental Grain Co “with the objective of enhancing shareholder value”.

Feeling the pinch

ArcelorMittal will report earnings on Thursday amid growing signs the steel industry is starting to feel the pinch from global trade tensions inflamed by US President Donald Trump. Last week, Voestalpine, Austria’s biggest producer of the metal, cut its profit outlook for this year and next.

There is concern ArcelorMittal may suggest that the final quarter will be more difficult as new emission-testing rules add to uncertainty over demand from Europe’s automotive sector. Shares of the world’s biggest steelmaker slumped this month.

Miners mingle

Top mining executives will mingle and debate the outlook in Australia this week amid a pullback in both commodities and industry share prices in 2018. The 27-member International Council on Mining and Metals, which includes Glencore and Vale, meets on Tuesday in Melbourne - home of sector leader BHP Billiton - for a twice-a-year forum.

The city also hosts a three-day International Mining and Resources Conference through Thursday, with speakers including Anglo American CEO Mark Cutifani. Rio Tinto Group CEO Jean-Sebastien Jacques, Goldcorp CEO David Garofalo and Fortescue Metals Group CEO Elizabeth Gaines are among executives scheduled to join Bloomberg TV for interviews from the event.

Bulls versus bears

Sentiment is improving in the gold market as global equity turmoil and geopolitical tension in the Middle East fuel haven demand. About 69% of traders and analysts were bullish on the metal, the most since April.

Copper traders were split as prices posted their fourth weekly loss in five, while natural gas analysts were divided amid prospects for warming weather and a stockpile crunch. In the agricultural markets, sentiment on soybean was the most bearish in five weeks, while traders leaned bearish on corn and sugar, and were split on wheat.

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