Commodities Roundup: OPEC cuts output but oil prices still fall; February construction spending rises; auto sales struggle
For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets.
MetalMiner, a sister site of ours, scours the landscape for what matters. This week:
Friends and foes & oil prices still low
After oil war combatants Saudi Arabia and Russia agreed to a deal Thursday, OPEC+ announced a plan to cut oil production by 10 million barrels per day in May and June in response to the COVID-19 crisis, CNBC reports, which said the cut was below expectations so oil prices fell Thursday.
Saudi Arabia and Russia came to the agreement via a teleconference after the two sides couldn’t agree in March to a proposed cut of 1.5 million barrels a day. When Russia declined that proposal, Saudi cut oil prices and ramped up production to 12 million barrels a day. That cratered oil prices, which also have been falling because of lower demand as people stay home during the coronavirus outbreak. Oil prices were around $60 a barrel in January — but they are half of that or less now.
“Although 10 million bpd will help the market on the short term to not fill up storage, it is a disappointing development for many, who still realize the size of the oil oversupply,” said Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen in a CNBC interview Thursday.
News of the degree of cuts made in the deal disappointed investors. WTI was down 6% to $23.39 a barrel, according to Markets Insider. Bent Crude, meanwhile, was down 2.7% to $31.95 a barrel.
U.S. construction spending rises 6%
U.S. construction spending in February reached a seasonally adjusted annual rate of $1,366.7 billion, according to the U.S. Census Bureau, marking a 1.3% decline from January but a 6.0% increase compared with February 2019 spending.
Through the first two months in aggregate, construction spending amounted to $193.5 billion, an 8.2% increase compared with the first two months of 2019.
Architecture billings were also up in February, according to the American Institute of Architects’ Architecture Billings Index, with a reading of 53.4 in February (anything greater than 50 indicates billings growth).
Strains on the E.U. in the age of coronavirus
In other news, Burns surveyed the state of the E.U. amid the coronavirus outbreak and the pressure the pandemic is exerting on various factions within the bloc.
“Unlike the U.S. and the U.K., where sovereign governments can make decisions, a collective policy in Europe requires just that — collective decision making and agreement,” Burns wrote.
“Over the decades, Europe has been quite good at reaching mutually acceptable decisions, even in circumstances with considerably divergent views.”
However, tensions have emerged as northern European nations have rejected some proposals by harder-hit countries in southern Europe, including Italy and Spain.
“The perception in hard-pressed southern states is that fiscally prudent northern states are unwilling to cooperate in creating sufficient economic support, and that perception is causing deep and potentially long-term damage to the fabric of a European collective ideal,” he wrote.
“The focus has been on northern states’ rejection of southern states’ proposed ‘coronavirus bonds’ raised largely to fund post-lockdown spending and regeneration. The north ideologically objects to the mutualization of debt, worrying that they will be called upon to fund all manner of spending by their less fiscally prudent neighbors.”
Auto sales slump
Last year proved to be a down year for automotive sales: 2020 could be even worse.
“Even before COVID-19 struck, car parts companies were looking to reduce headcount,” Burns wrote. “Now, automakers up and down the supply chain are furloughing staff at an unprecedented rate and shoring up balance sheets by drawing down on credit lines while they are still open.
“A separate Financial Times report stated General Motors and Ford have both drawn $16 billion and $15.4 billion from their credit lines, while Germany’s Daimler on Thursday opened a fresh $13.1 billion credit line on top of its existing $12 billion facility.”
Australia’s Lynas pauses Malaysian operations
Like many other companies in the sector, rare earths miner and processor Lynas Corporation announced the temporary suspension of its operations in Malaysia.
“As a responsible business, Lynas has taken steps to ensure the health and safety of our people and our communities, and we support the government’s actions to control the outbreak,” the company said.
“Accordingly, we have initiated a safe temporary shutdown of our plant into care and maintenance mode.
“As part of the safe temporary shutdown, we have retained some work-in-progress inventory that will allow us to ramp up quickly upon restart. Mt Weld will continue to operate during this period.”
Lynas is the largest rare earths firm outside of China.
Indian steel leaders cut output
Elsewhere in the economic impacts of COVID-19, India’s largest steel producers have decided to cut output, MetalMiner contributor Sohrab Darabshaw explained.
“Like their international counterparts, Indian steel companies are under immense stress because of production and demand disruption in the wake of the COVID-19 pandemic,” Darabshaw explained.
“The Press Trust of India reported Tata Steel and Indian public sector Steel Authority of India Ltd (SAIL) have cut their output by about 50%.”