Commodity Markets In 2020
Milk and milk products
Researchers revealed that worldwide milk production is forecast at 852 million tons during 2019, a rise of 1.4 percent from 2018 – a smaller rate of growth than earlier anticipated in May, reflecting downward revisions made for India and the European Union. Much of the anticipated output expansion will originate in India, Pakistan, China, the European Union and Brazil, partially offset by falls in some countries counting Australia, Colombia and Argentina. In India and Pakistan, herd expansions drive output growth, while in China, farm efficiency improvements underpin the higher growth. In the European Union, output is growing, albeit slowly as dry weather during the summer constrained milk deliveries, while in Brazil, rising dairy herd and stable milk prices support higher production. By contrast, output may fall in Australia and Colombia because of dry weather, whereas in Argentina, rising feed costs and restrained consumer demand may dampen production. Elsewhere, in the United States, higher milk yields sustain the growth momentum, whereas in New Zealand, favourable weather supports an optimistic production outlook.
World trade in dairy products (in milk equivalent) in 2019 is forecast at 76 million tons, up 0.8 percent from 2018, considerably lower than the last growth forecast. This emanates largely from a more subdued import growth forecast for China, reflecting predicted import curtailments of butter, but also of whey products because of reduced demand from piggeries. Elsewhere, the Russian Federation, the Philippines, Indonesia and Japan may buy more dairy products in 2019. Much of the expanded worldwide supply is probable to come from New Zealand and the European Union, thanks to increased export availabilities and new trade agreements. By contrast, retaliatory tariffs, reduced demand for whey products as hog feed and strong competition will constrain dairy exports from the United States, while tighter export availabilities weigh on exports from Australia. International dairy prices, measured by the FAO Dairy Price Index, increased by 24 percent between January and May of in 2019, mainly driven by a strong global demand. Since June, price quotations for butter and cheese were subject to more downward pressure because of increased export availabilities, especially from New Zealand, whereas those for Skim Milk Powder (SMP) and Whole Milk Powder (WMP) drifted higher, reflecting strong import demand from Asia.
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Aluminium
It is also recorded that Aluminium has not had a great year, and experts fully expect the bearish sentiment to continue well into 2020. The metal underperformed in 2019, losing 6 percent year-to-date because of trade war fears and waning downstream demand. Aluminium supply growth moved more into negative territory during 2019 and production gains, arising mainly from fresh capacity in the ex-China market (primarily the Middle East) have largely been offset by a drop in production from China. Global primary aluminium production dropped 1 percent YoY to 47.6m tons over the first 10 months of 2019, according to IAI data. Total production from the world’s top producer is estimated to fall by 1.4 percent for the full year for a variety of reasons, not least notable disruption from smelter outages in China because of floods and technical failures. And while aluminium supply growth declined into negative territory, worldwide demand growth sank even deeper. The net effect has left the global market with only a small deficit. A lack of strong fundamental catalysts has left aluminium prices prone to macro and trade talk whims. Bearish sentiment is probable to prevail for the coming year, as supply is set to recover in 2020 based on experts’ expectations that the worldwide primary supply will return to growth. Some of the Chinese smelting capacity, which was closed earlier because of floods, could be back online while around one to two million tpa of new capacity is likely to start operations in 2020.
The Experts anticipate global primary aluminium output recovering by 2-3 percent year-on-year to around 65 million tons in 2020, though some risks remain, such as capacity closures and delays because of low prices. On the raw materials’ side, the alumina market is set to see a growing surplus over the coming year, which again will weigh on prices and this may feed through to cost deflation on primary aluminium. Overall, global aluminium demand is probable to witness flat or even slightly negative growth unless the trade discussions progress towards consensus and industrial activity picks up. One supportive factor for aluminium is the low inventory at LME and SHFE warehouses where surpluses could be absorbed, given the right structure of the forward curve. However, this is purely from a market point of view and doesn’t take into account the potential impact of changes in the LME warehouse reporting rules. The price spread between aluminium 15M/cash increased to a five-year high of around US$133/t in June 2019 with the current spread of US$80/t or almost 5 percent of the LME cash prices. Weaker interest rates, decent contango and small queues at LME once again make financing deals (holding inventory at LME warehouses and selling forwards at a premium) lucrative for traders or financial institutions.