EXCLUSIVE: Kazakhstan – Commodities That Count, Markets That Matter; highlights Over The Week Ending January 18
Astana. KazWorld.info – Kazakhstan’s commodity output and sales are of crucial importance to its economy. The country’s hydrocarbon, mineral and agricultural sectors employ some 80 per cent of the working population and generate more than 60 per cent of the nation’s external income. This is why developments and trends concerning commodities in the global market arenas must constantly be kept under the eyeglass, since they directly affect the nation’s earnings and thereby its prosperity.
Oil price settings: going Trumpy-Trampy
Crude oil benchmark Urals, more than a million-and-a-half barrels of which are exported from Kazakhstan every day, has lost close to one per cent in price setting since the beginning of the year, against more than two per cent losses for the global North Sea Brent benchmark which is widely seen as the main trendsetter for Urals but trades with a marginal premium due to difference in quality. As for America’s benchmark West Texas International (WTI), which has no trade relations in terms of either import or export sales and purchases with the former USSR, it usually trades at a discount on Brent ever since the rise of the US shale oil and gas industry.
“Oil futures barely budged Friday, but fell for the week—caught between larger-than-expected growth in U.S. crude stocks and reports that OPEC members may exercise an option to extend a pact to cut production by six months,” Market Watch wrote on Saturday February 18. “March West Texas Intermediate crude rose 4 cents, or less than 0.1%, to settle at $53.40 a barrel on the New York Mercantile Exchange. The March contract will expire at Tuesday’s settlement. Monday is a holiday, Presidents Day, for U.S. financial markets. For the week, WTI futures prices ended about 0.9% lower, which was their first weekly decline in three weeks, according to FactSet data. April Brent crude added 16 cents, or 0.3%, to $55.81 a barrel on London’s ICE Futures exchange, for a weekly loss of about 1.6%.”
Reasons for the fluctuations given by observers vary from manoeuvres by the “greater OPEC” – meaning the cartel’s members plus a number of “volunteering” countries in terms of output control including Russia and Kazakhstan, to the latest charade by Donald Trump (his name is spelt Tramp in Russian transcription) and speculations over China’s market behaviour. Deeper, more factual explanations relating oil flows with cash flows and hedging activity are extremely rare and hard to find even incidentally, let alone on a regular basis.
“Oil prices have traded within a tight range since the start of the year, with investors monitoring the extent to which OPEC members have reduced production,” the article by Market Watch reads further down. “The cartel, along with other key producers including Russia, agreed last year to cut around 1.8 million barrels a day of oil output starting in January. The deal sent prices around 20% higher, which has provided incentive for producers outside of the pact, including in the U.S., to increase their output. Industry data pegged compliance with the agreement at about 90% in January. On Thursday, Reuters reported that OPEC sources said the cartel could extend the six-month deal to cut supply, or make more severe cuts, if oil stocks don’t drop by around 300 million barrels to the five-year average. According to OPEC’s latest oil report, commercial oil stocks of the Organisation for Economic Cooperation and Development countries are still around 299 million barrels above the latest five-year average.”
In a separate comment on current trends on the oil market, the newsreel of the US periodical Oil Price a similar tendency is being spotted. “Despite hints from OPEC that the cartel would be extending its production cut deal, oil prices fell slightly this week,” the article, posted on Saturday, was to read. “Oil continues to trade within a range with volatility falling to almost a three year low. Oil prices fell slightly this week as more signs emerged that the market is still oversupplied. OPEC officials said that they were considering extending the production cut deal for another six months, a move that could be interpreted as bullish in the sense that they will keep oil off of the market for longer. However, it failed to inspire confidence – an extension would come because the market is still woefully oversupplied. Oil prices reacted in a way that has become a familiar pattern in recent weeks – moving only slightly up and then down and then back to where they were beforehand.”
Gas: blame it all on the weather
Natural gas, of which Kazakhstan is a mid-size producer with an output of 21.3835 billion cubic metre through 2016 according to the national statistics agency, is exclusively exported by Russia’s Gazprom, mainly to central and western Europe – even though Kazakhstan’s national oil and gas company Kazmunaygas claims that direct exports of gas to China are under preparation and due to start before the end of this year. The price indication of Europe’s German benchmark, dubbed Gaspool, has been marginally declining so far this year. Yet, media report not without exaggeration that a “bearish trend” prevails on the market, resulting in price contractions.
“Dutch and German near-term prices fell sharply Friday morning as bearish sentiment resumed on a drop in demand amid rising temperatures across Europe, with market participants shrugging off ongoing outages on the Norwegian continental shelf,” as reported by Platts on February 17. “By midday London time, the TTF day-ahead contract was last seen trading at Eur18.10/MWh, tumbling 90 euro cent from Thursday’s assessment. The German GASPOOL contract was down 85 euro cent to Eur17.975/MWh while its NetConnect peer last traded at Eur18.575/MWh, down 77.5 euro cent. Temperatures were forecast well above seasonal norms for the coming days. Custom weather forecast temperatures in Amsterdam at 3 degree Celsius above seasonal norms Friday rising to 4 C above norms Monday. In Berlin, in the GASPOOL area, temperatures were seen at 2 C above norms Friday, increasing to 6 C above average Monday, while in Munich, in the NCG area, temperatures were seen at 3 C above average Friday, up to 4 C above average Monday. Real-time Norwegian flow rates into Emden-Dornum on the Dutch-German border were indicated lower at 97.15 million cu m/day at around midday London time, down from 102.87 million cu m/day Thursday, according to transmission system operator Gassco. […] The TTF March delivery contract was last done at Eur18.075/MWh, down 90 euro cent while the NCG and GASPOOL counterparts were down 62.5 and 60 euro cent each to last trade at Eur19.10/MWh and Eur18.725/MWh respectively.”
Hopes for cereals as FSU jumps in on US overpricing
In contrast to oil and gas, price-settings of which show a certain trend of regionalisation, market indicators for cereals are still very American, mainly because of underdeveloped and fractured market mechanisms in Europe and Asia. Price benchmarks are set on the New York Board of Trade for cotton, and on its Chicago counterpart for most other grains. How long this is to last can only be guessed, even as American media have noticed a gradual but steady decline in the USA’s market positioning of late, due to competition from new major players on the market which include Russia and Kazakhstan, which jointly market their agro-produce through Baltic, Black and Caspian Sea outlets.
Wheat prices on the Chicago Board of Trade have dropped sharply since the beginning of the year, losing about a quarter of its closing price on the last trading day of 2016 (see table). And the trend seems to persist. “Grain futures extended their losses on the previous day, with US wheat still too expensive to compete in export markets,” the US-based newsreel Agrimoney reported on Saturday February 17. “Row crop markets continue to suffer from bearish fundamentals, particularly as farmers are starting to show signs of willingness to sell at current prices. […]March soybean futures settled down 0.9%, at $10.34 ¾ a bushel. March corn futures settled down 1.3%, at $3.68 ½ a bushel. Wheat futures also fell, with evidence that US supplies are too expensive to compete in export markets. Egypt, the world’s top importer, bought 360,000 tonnes of Russian, Ukrainian and Romanian wheat. Prices paid ranged between $195.0 and $197.0 a tonne, excluding freight. There was some US product offered, but it was well out of the running, at $208 a tonne, even before considering the higher freight compared to Black Sea supplies. May Chicago wheat futures settled down 1.2%, at $4.42 ½ a bushel, after hitting multi-month highs in the previous session. […]cotton futures also slumped, under pressure from technical selling after prices broke out of an uptrend on Thursday. The March contract, which expires next week, opened below the 20-day moving average, but found support at the 50-day average. March cotton futures finished down 2.1%, at 73.48 cents a pound. May cotton futures settled down 1.6%, at 75.52 cents a pound.”
Since the beginning of the current marketing year, Kazakhstan already supplied more than 5 mln tonnes of grains and flour on foreign markets, declared the Ministry of Agriculture of the Republic of Kazakhstan on February 17. The country exported 3.28 million tonnes of grains and 1.32 million tonnes of flour. In the season-2015/16 Kazakhstan supplied 5.4 million tonnes of grains and 2.1 million tonnes of flour to foreign markets, the Kiev-based agro-newsreel APK Inform reported.
“In the current marketing year (MY, running from July 1 to June 30), wheat production in Kazakhstan will reach 17 million tonnes, the agency reported on February 16 referring to the International Grains Council (IGC). “Stocks of wheat in the country are estimated at 2.5 million tonnes, up 0.1 million tonnes only compared with the previous season. Also, the total supply will reach 19.6 million tonnes, as opposed to 15.1 million tonnes in the 2015/16 MY. In addition, the export potential of wheat in the 2016/17 MY reaches 8.9 million tonnes, against 7.3 million tonnes supplied to foreign markets in the previous season. The ending stocks of wheat will reach 3.7 million tonnes (down 1.2 million tonnes compared with the season-2015/16).”
Metals: a new dawn in view as prices gruadually move upward
Benchmark prices for ferrous and non-ferrous metals, which are set on the London Metal Exchange which publishes, by the hour, updates on stocks in store all over the world, have performed well so far this year with the exception of lead and tin (see table). Blessed with high mineral reserves of almost all the elements included in Mendelyev’s table, the country’s mining industry is producing way under its deposits’ capacity, since the economic setback caused by a sharp drop in oil prices in 2014 has not spared the mining sector either.
“The base metals on the London Metal Exchange are for the most part weaker this morning, Friday February 17. Tin and copper prices are little changed, with three-month copper prices at $5,991 per tonne, while the rest are down an average of 1.1%. Volume has been average with 7,886 lots traded as of 06:25 GMT,” Fast Markets reported at the end of the week. “Thursday’s trading was also generally weaker with copper, aluminium, lead and tin prices down between 0.6% to 1.1%, while zinc was off 0.2% and nickel bucked the trend with a 1.3% gain to $11,050 per tonne – underpinned by a net bullish interpretation of the recent changes in nickel ore supplies from Indonesia and the Philippines. Precious metals are consolidating this morning either side of unchanged with spot gold prices at $1,237.89 per oz, but this is after a bullish day on Thursday, when prices closed up with gains of between 0.3% and 0.6%.”
On the whole, Kazakhstan can pin some hopes on the recovering mining sector, according to the newsreel. “The base metals seem to be consolidating recent gains, which in many of the metals have seen prices at levels not seen since 2015, while nickel and tin prices are consolidating after the strong rebounds that followed the January sell-offs,” the report reads further down. “We generally remain bullish for the metals’ fundamentals but need to take into account that many of the metals prices have already moved a long way and going forward the market may need to see more evidence of tightness in the fundamentals, as in seeing exchange stocks fall, before prices can continue higher. The precious metals prices, especially gold and silver, are looking robust – dips have been seen but they have been shallow and short-lived, even with the dollar showing strength in recent weeks. We remain bullish for the precious metals complex.”
In terms of produce valuation and export sales prices, 2016 was nevertheless a good year for Kazakhstan. “According to the Statistics Committee of the Ministry of national economy, export prices in 2016 increased by 9.4% on average, and import prices by 16.4%,” the Kiev-based specialised newsreel Ukraine Metal reported on February 15. “The highest increase in export prices was observed in zinc (by 72.8% YoY), lead (54.5%), ferrous metals (37.2%), aluminum (28.2%), coal (25.5%) and ferroalloys (24.1%). Ferrous and non-ferrous metal ores exported from Kazakhstan went up in price by 17% YoY.”
Coal remains in vogue despite pollution threats
As for coal, of which Kazakhstan produced more than 102 million tonne in 2016, its global market value still finds itself in a persisting depression which started about a year ago, when China started to implement its anti-smog policy with large reductions on coal combustion on top of the list. Some people see light on the horizon with the new American government pushing in the opposite direction, but what that could mean for Kazakhstan’s position on the world market remains unclear for now.
“The coal industry has been severely impacted by stringent regulatory measures to control emissions in electric power generation. Despite the numerous hurdles in coal’s way at present, this fuel source still holds an advantageous position thanks to its wide availability and lower cost compared to other fossil fuels and renewable sources of energy. Importantly, the new administration is committed to rolling back all of the regulatory and environmental hurdles in the industry’s path,” Nasdaq’s news service reported last week. “Most of the energy pundits have ruled out coal as a fuel source and are quite skeptical about its future prospects. However, with the presence of President Trump at the helm of U.S. administration can prove to be a game changer for the coal industry and help in the revival of the fortunes of the coal industry through relaxation of emission rules.”
According to a report from the World Coal Association cited in the article, there are currently 861 billion tonnes of proven coal reserves worldwide, “… implying that there is enough coal to last nearly 112 years at current rates of production,” in the agency’s words. “In comparison with this, proven oil and gas reserves are predicted to last around 46 and 54 years, respectively, at current production levels. The current availability of coal even outpaces the combined proven reserves of oil and gas. So the advantages of coal cannot be overlooked and it will definitely have bright long-term prospects for investors.”
Uranium: Kazakhs apply Saudi policy, but playing solo
It does not necessarily mean, though, that while oil and gas are dying industries, coal is just hibernating. The same is true for that controversial mineral playing a controversial role in the world energy landscape which is uranium, of which Kazakhstan is the biggest producer and holds the third-largest reserves in the world. In a move to constrain a constant depression in sales prices which fell in after Japan’s Fukushima accident and has persisted ever since, Kazakhstan, following OPEC’s preceding measure, recently cut (with a lot less noise than in OPEC’s case) its output by 10 per cent.
“Kazatomprom Chairman, Askar Zhumagaliyev, announced today that due to the prolonged recovery in the uranium market, planned 2017 production from Republic of Kazakhstan will be reduced by approximately 10%,” a press release by the Kazakh national nuke corporation Kazatoprom posted on January 20 this year was to read. “This will amount to a volume greater than 2,000 MtU or more than 5 million lb U3O8 reduction in 2017 planned output. For greater context, this is equal to 3% of total global uranium production (based on 2015 UxC Consulting figures).” The measure comes as uranium’s benchmark price has gained in the order of 30 per cent so far this year.
“The collapse in uranium prices has had a significant impact on production, and these production cuts have finally started to impact the supply chain and prices. Uranium prices started to move up at the end of 2016, and these gains accelerated in early 2017,” the Economic Calendar reported at the end of last week. “American uranium production continues to decline and according to data released this week by the US Energy Information Administration, the country’s 2016 uranium production saw a very steep retreat, falling to its lowest since 2005. Still the overall impact on prices from this development is likely negligible. US production of uranium concentrate (U3O8) totaled 2.9 million pounds in 2016, 13% lower than 2015 production and the lowest annual US production since 2005. US uranium concentrate production in 2016 was less than 7% of the historical peak production level of 43.7 million pounds in 1980. Note that US uranium concentrate production started in 1949 and increased until peaking in 1980 when imports started to take over market share from domestically produced uranium. In 2015, US nuclear power reactors purchased 57 million pounds of uranium. Nearly half of these purchases originated from two countries, Canada and Kazakhstan, which provided 17 million pounds and 11 million pounds of uranium, respectively.”
The newsreel gives Kazakhstan a prank for its voluntary move to save the entire market from going under. “While the drop in US uranium production in 2016 was significant, it isn’t particularly important when it comes to the global uranium market. This is because, as mentioned above, the country’s importance as a producer has been declining for decades. Yes, uranium prices have started to improve, but much more significant to the market, as we reported earlier this week are supply cuts in other countries – particularly Kazakstan. Kazakhstan is a major uranium producer. The country supplies 40% of the world’s uranium; therefore when state-owned Kazatomprom announced a 10% uranium production cut earlier this year, uranium’s price recovery accelerated,” in the report’s words.