What to watch in commodities: Trade war, gold, crops and steel

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The biggest names in the North American steel industry gathered for a summit in Atlanta yesterday amid mounting scepticism over the ability of Trump tariffs to generate jobs and ensure the viability of US companies. Prices of the metal have sunk by about a third in the past 12 months as the escalating trade war between the country and China clouds the outlook for demand.

Commodities are set to close out August with another monthly loss as the US-China trade war goes from very bad to a whole lot worse. After a major escalation on Friday and further blows landing over the weekend at the G7 leaders’ summit, investors will get a series of opportunities this week to assess the extent of the damage plus clues on what comes next. After signalling that he doesn’t regret starting the showdown, US President Donald Trump said the prospects for a deal with China are better now than at any time since negotiations began last year, even as a top state-media editor in Beijing questioned his version of events. As the fallout spreads, pretty much the entire top table of China’s commodity industry reports earnings this week, yielding insights into how they’re faring. Among the big names are Jiangxi Copper Co and PetroChina Co. In the US, Trump’s Agriculture Secretary Sonny Perdue will head to one of the nation’s top farm shows, where he risks a rough reception from frustrated growers after Beijing took fresh measures against soy and cotton. Also Stateside, the biggest names in the steel industry gather in Atlanta, with tariffs and recession concerns set to dominate. And in addition to those events, watch for earnings from Sibanye Gold Ltd, which just acquired Lonmin Plc.


Upping the ante
Events this week for raw materials will be dominated by the US-China trade confrontation, and its consequences for the global economy. Both sides swapped salvos on Friday, and President Trump then pressed home his hard line at the weekend. Commodities including soy, corn and cotton were targeted in the latest measures from the two sides. The confrontation will do further damage to copper, while supporting high-flying gold. The latest measures and counter-measures risk derailing the next round of talks, which had been slated for next month, and take the conflict to a new level.Two top White House officials said the president has the authority to force American companies to leave China. Almost lost in the uproar was news on another front that Washington and Tokyo agreed in principle on a deal under which Japan will cut tariffs on US beef, pork and other farm products.


All together now
It’s truth time this week for China’s raw material players. A who’s who of the nation’s commodity world including PetroChina, gold heavyweight Zijin Mining Group Co and base-metal giants Jiangxi Copper and Aluminium Corp of China are scheduled to deliver earnings. The figures, executives’ commentary and market reaction will reveal how they are faring and, critically, what’s likely to come next. Are they battening down the hatches amid the gathering storm? The backdrop to the deluge has been a slowdown in Asia’s top economy as the trade war with Washington bites.That fight has roiled exports, dented consumption growth, and hurt prices. In base metals, the big question is how bad will it get, and whether capacity will now be taken offline. In energy, Sinopec got the ball rolling on Sunday, reporting a 24% drop in first-half earnings.


Sowing frustration
Amid rising tensions in the US farming heartland as the trade war grinds on, Agriculture Secretary Sonny Perdue will front up to the Farm Progress Show in Decatur, Illinois, this week. Farmers hit by low prices and wild weather are growing impatient with policies that have eroded soybean demand from China and potentially corn consumption from the domestic biofuel industry. Frustrations are starting to boil over after bumper global harvests have kept crop prices lower for years, eroding incomes.Government estimates that show crops weren’t affected by the weather as much as traders and farmers thought are further fanning dismay. Perdue, who just weeks ago was the target of criticism by farmers in Minnesota, may face further heat defending policies.


Ferrous function
The biggest names in the North American steel industry gather for a summit in Atlanta from yesterday amid mounting scepticism over the ability of Trump tariffs to generate jobs and ensure the viability of US companies. Prices of the metal have sunk by about a third in the past 12 months as the escalating trade war between the country and China clouds the outlook for demand. Earlier this month, US Steel Corp notified the state of Michigan that the temporary idling of some of its operations would result in layoffs for 48 employees, and warned that the number of job cuts could total less than 200 “based on current market conditions.” The company that has seen its global workforce shrink to 17,000 last year from 29,200 in 2017 – before the tariffs were put in place – said in June it’s halting operations at two blast furnaces in the US and one in Europe until “market conditions improve.”


All that’s not gold
Sibanye Gold Ltd reports first-half earnings on Thursday, a few months after its acquisition of Lonmin Plc made it the world’s biggest platinum miner. Investors will scrutinise the results to see whether higher prices – especially gold and palladium – are generating enough cash to make a dent in the company’s debt pile. A robust set of results will also raise hopes that Sibanye chief executive officer Neal Froneman will be able to resume dividend payments next year. The relief provided by the rally in the company’s key markets may yet be tested by wage negotiations with workers at its platinum mines in South Africa. Sibanye has reportedly offered a smaller pay increase than its rivals, but is probably also the producer least able to withstand a prolonged strike.


Bulls and bears
Traders and analysts who shifted away from a bullish stance on corn were right on time last week. China’s announcement it will impose additional tariffs on $75bn of US goods pressured prices. That weighed further on the grain as a US Midwest crop tour showed some fields in better shape than some traders had feared. In a survey Thursday, about a third of respondents were bearish, with 42% neutral – dropping bullish readings to the lowest in nearly a year. There was one lone copper bull among bearish and neutral respondents as recession risks spread and no end seems to be in sight for US-China trade battles. Those surveyed on US natural gas expect futures, which are retreating for the ninth straight month, may hold steady or drop even lower as summer draws to an end and production climbs. Terminal subscribers can see other commodity surveys here.

Sources and photo-credits: Gulf Times, Bloomberg