The consequences of “black Monday oil” when the price of oil WTI futures went negative, has spilled over into other commodity markets. In particular, has gone down the price tag on the crops that are used in the production of bioethanol — corn, canola, soy. In the near future are expected to fall and the sugar.
On the eve of the oil collapse, March 17, corn on the Chicago stock exchange was trading almost for 3.25 dollars per bushel (about 128 dollars per ton), 20 April, they fell to 3.17 dollars, and the next day, to 3.02 dollars. As of April 24, the price tag came back to around 3.17 USD. But soon a possible new failures.
“Knock-down oil prices, bioethanol production is almost meaningless. Therefore, the raw material will probably continue to fall”, — predicts analyst at the Institute Growford Alex Kush.
And this is a direct threat to our exports.
“The grain in the shaft in the 60-70 million tonnes per year the share of corn, soybeans and rapeseed account for up to 25%. Our losses from the collapse in prices can amount to several billion dollars”, — predicts Kush.
Not the best of times is now experiencing and the other is strategic for our exports market — metal.
On the London stock exchange LME steel prices after the collapse in oil futures has fallen from $ 248 to 242 dollars per ton. Reason of course not just oil. Demand for the metal is falling because of the crisis and total quarantine. According to forecasts GMK Centre in April-may, the Ukrainian company will reduce steel production by 25% compared to the same period last year.
It is more or less well with the ore and wheat. Iron ore is trading at almost $ 83 per tonne (at the minimum last year to $ 78). Plus, our exporters are now actively increasing deliveries to China.
The may wheat futures over the last week actually increased slightly. However, the situation is changing literally every day.
And at the end export the account may not be in our favor.
“Ukraine risks losing the exports of the order of 5-7 billion dollars this year, while save on cheap oil and other energy resources we are not more than 2 billion”, — says Alexei Kusch.
“The country” to understand, cheap oil will hurt Ukrainian exports.
“Wrong” raw scissors
The oil does not sell at a loss, but, according to analysts, the record price collapse could be repeated in the month of may, the transition to the July futures. Also set the General trend for a reduction in the cost of oil.
According to forecasts of analysts of Institute for strategic studies Yuriy Korolchuk has said that Brent crude oil will trade in the range of 15-20 dollars per barrel. Such low prices will hit the cost of not only oil but also other energy commodities, particularly gas and coal.
In theory, Ukraine is profitable — we can get the cheap petrol, diesel and gas and to reduce the cost of a number of industrial and agricultural products and utility tariffs.
However, this time, raw scissors can work in our advantage, — says Alexei Kusch.
Effect of raw scissors for Ukraine, the difference in savings on energy (from import dependent) and profit on export of goods (grain, ore, metal).
If energy is getting cheaper faster than grain and ore, Ukraine receives the time gap and additional profit, and if slower loss.
But this time, this rule may not work.
“Negative prices on the ore, of course not. But the real savings in energy can be less than the loss on exports,” says Kusch.
As already mentioned, the Country, the petroleum products in Ukraine will be cheaper. But a collapse can be expected. Until the end of April prices will fall by 2-3 hryvnia, and cheap oil can give up to 1.5 hryvnia savings. The spread of fuel prices will be 13 to 23 hryvnia per liter.
In the Ukraine because of the quarantine and the crisis fell sharply consumption of petroleum products. According to consulting company A-95, in April the volume of fuel sales will drop by 40-50%.
Because of the decline of the industry reduced the consumption of gas.
“Cheaper gas makes impractical the use of coal. That, in parallel with the decline in world prices for puts him on the brink of bankruptcy, the majority of Ukrainian mines”, — says Alexei Kusch.
That is, to save on reducing energy prices, of course, Ukraine will be able, but with the lower consumption — no more than $ 2 billion.
Losses on exports may be at times more, says Kusch.
Corn in the negative
According to the head of analytical Department Forex Club Andrey Shevchishin chain reaction for the markets after the oil collapse will be as follows:
Falling oil prices leads to losses of the shareholders, increase the debt of the oil trading, mining and service companies. Holders begin large-scale sale of other assets to provide a depreciated collateral. There is a chain reaction of defaults and the drop in other markets — stock, commodity, debt. The system is shaken.
The fall in oil prices reduces the costs for transportation, heating, etc, so you can reduce the sale price of goods — grain or metal. The result is a fall in spot prices for other commodities.
Currencies of oil-producing countries fall and reduce the prices of their products to ensure it a competitive advantage. It is also a factor in the decline of spot prices.
The first reaction of commodity markets is already there. In particular, lower prices for crops that go into biofuels — corn, canola, soy. Cheaper sugar.
Corn prices are constantly jumping. April 21, the day after the oil collapse, the price tag dipped to 3.02 dollars per bushel, then rose to 3.17. Just a couple of hours while writing this text, the price tag is already a bit over 3.16 USD.
Exchange rates for rape fell last week with 372 dollars to $ 366 per ton. Soybeans now trading even a bit more expensive than at the beginning of the week — almost 8.4 dollars per bushel (about 308,3 dollars per ton). But during the week the market fell a few times to 8.09-8.1 dollars per bushel.
Thus wheat are all more or less well. May futures on U.S. exchanges are traded at a $ 5.46 per bushel (about to 200, 4 dollars per ton). And over the last week the price even increased in the range of 2-3%. On the London stock exchange the price tag on wheat — $ 157 per ton (which is 5 dollars cheaper than at the beginning of this week). In Paris the price of milling wheat over a week has not changed — 203, $ 2 per ton.
On the one hand, the demand and wheat prices should remain stable. The UN predicts increase in demand for food, and even the threat of hunger on the background of the pandemic.
“Because of the quarantine, some countries imposed export restrictions. Affected by the poor condition of the crops in France, and purely seasonal factors. Domestic manufacturers are now much more profitable to sell grain on the international market, what the cost of bakery products in the country may increase. As one of the ways to prevent such development of the situation is called a possible restriction of grain exports in Ukraine: all-Ukrainian bakers ‘ Association appealed to the President to impose temporary restrictions. Our country plays a significant role in the market, so if the government will listen to the Association, we can expect further growth of prices on the international market. If not there, then the price of bread in the country can grow by 15-20% in the coming weeks”, — says the analyst of TeleTrade Sergei Rodler.
On the other hand, demand for feed wheat, which Ukraine sells a lot, maybe to sink. Fodder is the production of animal feed, and demand for them just is not guaranteed, — says Alexei Kusch.
“The need for food in the world will be. But mostly — in the simplest food. The decline in the system of public power and crisis in the hotel market will reduce demand, for example, in deli meats. Hence, there will be high demand in the compound feed for growing cattle of certain breeds, etc. That is, the reduction in demand will go through the chain,” he says.
In the end, nearly a quarter of their grain exports (corn, canola, soy), Ukraine will lose at the expense of lower prices. Losses can be up to 2.5-3 billion dollars, experts say.
Wheat at best earnings will be stable. If we manage to maintain the wheat harvest, which this year is not guaranteed.
All hope for China
Reduced prices for the metal. On the London stock exchange LME for the last week the steel fell from 248 to about 242 dollars per ton.
“The situation with prices, as of April worse than the fall of 2019. Producers operating at a loss. Last year, the situation is rapidly improving. Now there is significant uncertainty, a price floor may be long enough,” said analyst GMK Center Andrei Tarasenko at a recent webinar.
In his opinion, the industry can return to pre-crisis level no earlier than 2021.
So far, enterprises of mining-metallurgical complex cut production. In April-may, steel production will fall by 25%, compared to the same period last year (1.4 million tons). In the January-March decline too, but not as big (only 3.4%).
But then the main reason is not so much the oil, how much the global crisis and the pandemic coronavirus, obvalovka demand for the metal.
“During the quarantine, the semis, and this is the main article of our exports of steel, little demand, as it stopped many rolling mills in Europe”, — said Tarasenko. The fall in steel consumption was about 10%. Plus intensified competition on the world market (primarily from Russian and Turkish suppliers).
On this background the situation with iron ore seems to be optimistic.
According GMK Center, for the first quarter of this year, exports of iron ore from Ukraine increased by 18.2%, compared to the same period last year.
Moreover, only in March, deliveries increased by 30.6% to 4.7 million tons. In particular, Ukrainian exporters increased earnings on supplies to Poland (by 1.3%, to 104.3 Moore dollars for the first quarter of 2020), as well as a record — more than three for export to China (up to 458 million dollars).
Also in China began to supply our cast iron. For the first quarter of this year products shipped for 59 million dollars.
Parallel exporters are losing supplies to Turkey (the cast — minus 28%), USA (minus 32%), Austria (for iron ore or minus 20%). That is, radically changing the structure of markets. In the first place is the Chinese market, which is beginning to recover after the epidemic of the coronavirus.
With the price of ore while too all is quiet. The price tag is kept at around 82-84 in dollars per ton. For comparison: the annual minimum is $ 78 per ton, and skeptics predicted the market the price tag generally $ 60.
To sum up, wheat and iron ore may be the most profitable export items to Ukraine in 2020.
But they are still unlikely to cover total export minus, which is estimated to Alexei Kusch, will make 5-7 billion dollars of foreign exchange earnings. Against the background of the expected reduction in income from migrant workers can greatly weaken the position of the hryvnia.