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Why tropical commodities are exposed to a strong El Nino
Forecasters predict that a strong El Nino pattern will develop in the second part of the year. This pattern is expected to boost temperatures, disrupt?rainfall, and pose risks to crops around the world. What is El Nino? Why are soft commodities, or those grown in tropical areas, particularly vulnerable? EL NINO El Nino occurs when trade winds weaken, causing a periodic increase in sea surface temperature. El Nino occurs in nature every two to seven year and lasts between nine and twelve months. Weather patterns typically result in hotter temperatures around the world, droughts in some regions, such as Australia, South and Southeast Asia and Southern Africa, but heavy rain in others, including southern South America and United States. Last week, the U.S. National Oceanic and Atmospheric Administration announced that El Nino had arrived. It also said that the weather pattern will intensify with a 63% probability of a "super El Nino", or a very powerful El Nino, heading into 2027. El Nino's dryness, heat and excess rains will be a major blow to farmers who are already struggling with price shocks for diesel and fertilisers due to the?U.S./Israeli war against Iran. Soft commodities have seen consistent price increases during previous El Nino episodes. According to WisdomTree, every strong El Nino over the past 55 has led to a reduction in cocoa production. West Africa, the top cocoa-growing region, was hit with double its usual rainfall during El Nino. This left trees vulnerable to a fungus disease. In 2024 the weather pattern reversed and West Africa experienced intense heat and Harmattan wind that was unseasonably strong and dry. This caused the trees with disease to lose their flowers. Everyone thinks El Nino only affects West Africa. This is not necessarily true. Climate change can sometimes result in too much initial rain. Jim Roemer, of the consultancy Best Weather, said that this was his biggest concern at present. Ivory Coast, which is the second largest bean producer in the world, and Ghana are responsible for about half of the global cocoa production. Ecuador, the third largest bean producer in the world, is prone to excess rain during El Nino episodes. Cocoa prices almost tripled by 2024, after the West African harvest was a failure. By late 2024 they had reached record prices of over $12,000 per metric ton, making chocolate more expensive than most industrial metals. COFFEE El Nino can be particularly problematic for robusta as it brings increased temperatures and decreased rainfall to the top coffee-growing country Vietnam, and No. From the middle of the season onwards, Indonesia is the No. 3 coffee producer. During the development of the crops, the adverse weather affects both countries that together account for around 50% of global robusta production. The effects are felt in the fourth quarter during harvest. Analysts at Citi said that the dryness in Vietnam and Indonesia may reduce robusta coffee yields. El Nino has a more subtle impact on arabica coffee. Nearly half of it is grown in Brazil. El Nino, according to Carlos Santana of EISA's trader ECOM, could be positive for the crops Brazil is harvesting right now, as higher temperatures may prevent damaging winter frosts. El Nino, on the other hand, is more likely to affect output in 2027. It will bring heat and dryness to Brazil's coffee-growing regions during the fourth quarter, when the new crop is being developed. El Nino is a phenomenon that brings excessive rains in the second half the year. This can cause the sugar harvest to be disrupted and reduced in quality in Brazil, the top producer. The No. In contrast, the weather pattern in India, which is the world's second largest sugar producer and Thailand, its No. 2 exporter reduces rainfall during summer monsoon. Thailand is the No. India's 2026 monsoon is expected to bring the lowest rainfall for 11 years. Showers during the period of June-September crop development will be 90% below average. Carlos de Mello of Hedgepoint, the head of sugar at Hedgepoint, estimates that a moderate El Nino would cut India's production by around 1 million metric tonnes. The above-average rainfall that El Nino brings to Brazil's sugar region could benefit the crop next year. Hedgepoint's de Mello stated that it was "hard to imagine a bull-market scenario for El Nino", because of the potential benefits El Nino could have on Brazil's sugar crop in 2027. Brazil exports about half the world's total sugar.
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Sources say that the China Copper Smelter Group is looking to expand its membership.
Four sources familiar with the matter have confirmed that C hina's leading copper producers are looking to expand the membership of their smelter team in order to improve their negotiating position with the miners regarding?raw materials supply. A group of 16 large producers who traditionally set the 'floor price' for copper concentrate processing contracts, called The China Smelters Purchase Team invited several potential 'new members to its quarterly meeting in Yantai, Shandong Province on Wednesday. Chinese smelters have begun negotiating with Antofagasta, a Chilean miner, about?concentrate supply deals. Smelters charge treatment and refining fees (TC/RCs), which are paid by miners to process ore into refined metal. Due to a lack of concentrate supply, spot TC/RCs are 'deep in the negative territory for months. (Reporting and editing by Lewis Jackson, Amy Lv Dylan Duan, Tom Daly)
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The gold price has not changed much as the markets await Warsh's Fed debut and details of the US-Iran agreement
The gold price was essentially unchanged on Wednesday as'market participants were focused on the 'first policy decision of new Federal Reserve chair Kevin Warsh, and on details of the U.S. Iran peace agreement. After a four-session rise, spot gold was unchanged at $4,323.50 an ounce as of 0852 GMT. U.S. Gold Futures fell 0.3% to $4,342.40. The gold market will be influenced by the FOMC's signals today. Investors will be closely watching how Kevin Warsh interprets recent developments, said Saxo Bank analyst Ole Hansen. At 1800 GMT, the Fed will announce its policy decision. It is widely expected that policymakers will?hold rates constant. Warsh's remarks will be the focus of attention. On the geopolitical side, details of the U.S. and Iran's agreement to end the Middle East war began to emerge Tuesday. U.S. president Donald Trump said it would rule out Tehran having a nuclear bomb, while a U.S. representative stated that it would allow Iran the ability to sell oil after signing. After the announcement of the deal, spot gold rose to a?one-week high. This was a rebound from the six-month-low it reached last week. The higher energy prices that fuel inflation fears and the expectation of rate hikes had put pressure on gold. Standard Chartered analysts said that the gold price remains 'fragile' in the short term, following the breach of technical?support located at the 200-day average. They added that "However, easing of liquidity needs following the announcement of?US-Iran Memorandum of Understanding bodes?well for?gold to find a floor price sooner rather than later." Silver spot fell by 0.8%, to $69.59 an ounce. Platinum dropped 1.1%, to $1,784.85; and palladium, at $1,344.21, was down 0.6%. (Reporting and editing by Milla Nissi-Prussak in Bengaluru)
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Gold stable as US-Iran details emerge; Fed verdict is awaited
On Wednesday, gold prices remained largely unchanged near a week-high as investors awaited the Federal Reserve's first meeting and details of a U.S. Iran agreement. As of 0747 GMT the spot gold price was unchanged at $4,328.67 an ounce after hitting a high of $4.370.82 per ounce on Monday. U.S. Gold futures for August delivery fell 0.1% to $4,348.40. Donald Trump claimed that the agreement with Iran will prevent?Tehran from developing nuclear weapons. A U.S. official stated that Iran will be allowed to export oil. Prices of oil hovered around a three-month high on the expectation of Iranian supplies, which eased inflation concerns. Ilya Spivak is the head of global macro at Tastylive. He said that the rally in gold was losing steam as all eyes were on the Fed's monetary policy announcement (at 1800 GMT). "Traders are still unsure how he will reconcile a hawkish track record with rising inflation and the White House's demand for a dovish turn." The majority of Fed policymakers believe they must keep short-term borrowing rates in the United States on hold for the entire year. Projections due later today are expected to reflect this. A small number have penciled in a rate increase to prevent a spike in inflation. According to CME FedWatch, traders see a 59% likelihood of a U.S. interest rate?hike for December. This is down from 70% the week prior to the announcement of the U.S./Iran peace agreement. When rates are high, gold tends to lose its appeal as it doesn't yield any?interest. In a recent research note, Westpac analysts wrote: "Over the long term, structural support is expected to continue, driven by continued Asian demand, and central?bank purchasing as a hedge for?geopolitical risks and policy risks." Silver spot fell by 0.1%, to $70.12, platinum dropped 1%, to $1,786.25, while palladium was off 0.2%, at $1,348.64. (Reporting and editing by Noel John, Bengaluru. Rashmi aich, Sherry j. Phillips, Eileen Soreng, Harikrishnan Nair.
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The Swedish central bank is holding rates and sees an increased possibility of a hike in the near future
As expected, Sweden's central banks kept their policy rate at 1.75 percent on Wednesday. They also said that the chances of interest rates being raised this year have increased compared to March. The Riksbank stated that underlying inflation is low, and economic activity is weaker than usual. However, supply disruptions caused by the Middle East war have led to an increase in inflationary pressures. This has increased the risks of inflation becoming too high. The Riksbank stated that "the Executive Board assessed that it was well-balanced for the policy rate to remain at 1.75 percent, but that the likelihood that the rate would be raised later in the?year had increased compared to the March assessment." In a survey, all 19 analysts except one predicted that rates would remain unchanged. However, the majority of them saw at least a small increase this year or next. Inflation in Sweden looks hazy. Contrary to other European countries where the Middle East war has already driven up prices, the underlying inflation rate in Sweden in April was zero - the lowest in 30 years. Temporary tax cuts ahead of the September elections and a stronger crown have lowered import prices. The headline CPIF measure, which is the preferred Riksbank gauge?that removes the effects of changes in interest rates, was?at 1.5 % in May, well below the 2% target. Sweden will not be immune from price pressures in the future. In 'April, producer prices rose at the fastest rate since early 2023. Meanwhile, input price inflation was also at a multi-year peak in both manufacturing and services. Reporting by Johan Ahlander in Stockholm, Niklas pollard in Copenhagen, Anna Ringstrom and Louise Rasmussen, with editing by Terje Solsvik.
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European shares flat as investors await US-Iran deal details; BMW slides
European shares opened on Wednesday with a muted tone as investors awaited the details of a pending U.S. Iran peace deal and Federal Reserve's outlook for monetary policy. Auto stocks also fell following BMW's cut to its annual forecast. The pan-European STOXX 600 Index edged up 0.05% to 636.29 by 0710 GMT. BMW dropped 7.3% as the premium 'carmaker' lowered its profit forecast due to the weakness of the Chinese market and the impact of the Iran War. Separately a survey revealed that German automotive suppliers expect business conditions to worsen in the coming year, outnumbering the industry's optimists. This is because domestic hiring has reached a new low, and investments are moving overseas. Investors around the world are on edge as they await the Friday signing of the peace agreement between the U.S.A. and Iran after both countries had signed an initial agreement to end the conflict. Since then, the sharp decline in oil prices has boosted global sentiment. The benchmark 'STOXX600' is trading at an all-time record high. Barclays is the "latest" brokerage to announce it has closed down its underweight position in European stocks. Later in the day, the focus will be on the Fed monetary policy decision. The spotlight will be on Kevin Warsh's comments on interest rate outlook. Leonardo, a stock that is traded by individuals, rose?1.7% following the Italian government's conditional approval of the joint venture between state-controlled defence groups and Turkey's Baykar.
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Middle East crude prices drop as U.S. Iran deal boosts supply outlook
Data showed that the Middle East crude market fell sharply, and even slid into discounts. This was after the United States, Iran, and other countries reached a framework agreement to reopen Strait of Hormuz. The 'Asian refining market led by China is still subdued despite months of?run-cuts.' Hopes for higher supply following the deal have pushed Dubai and Middle East benchmarks to contango, and provided rare arbitrage opportunities in Europe and the United States. Benchmark Dubai’s premium to swaps fell into a 46-cent discount on Tuesday. This is the first contango structure in January. A contango market structure is one in which cargoes that are due to arrive soon trade at a lower price than those that will arrive later, signaling ample supply. On Tuesday, the differentials between?spot Oman and Murban were reduced to 67 cents each. Spot premiums in Dubai and Oman reached record highs, exceeding $60 per barrel. Murban's peak peaked at more than $50 per barrel after the conflict disrupted supply. Naveen Das, senior crude oil analyst at Kpler, said that while the practical timelines of the reopening are still uncertain an estimated 4,000,000 barrels per day?of crude were already moving through the waterway before the diplomatic breakthrough. The reopening of the facility will release millions of barrels that are currently in floating storage. This will directly increase?the physical volume that determines the Dubai benchmark, and apply intense downward pressure to regional pricing. The Strait was responsible for a fifth of the world's crude oil and natural gas. Since April, the Dubai benchmark has been declining as rising crude prices have curtailed buying interest among Asian refiners. This has led to run-cuts and increased purchases of alternative grades in regions such as United States. Some Middle Eastern producers were able to export oil from the Strait of Hormuz ahead of the signing a preliminary deal between the U.S. Abu Dhabi National Oil Company has offered at least 30,000,000 barrels of spot oil to Asian traders and refiners so far this month. ARBITRAGE TO US AND EU OPEN The fall in Middle East crude oil prices has also opened arbitrage opportunities for destinations outside Asia. According to a trader, four or five Very Large Crude Carriers were carrying Murban and Das crude from Abu Dhabi to Europe. The cargoes belonged to Exxon Mobil. According to one trader, Exxon Mobil owns the cargoes. Exxon, TotalEnergies and other oil companies are shipping 13 to 15 million barrels a day of Middle East crude to the U.S. Companies rarely comment on business deals. Traders said that the shipments were more economical for Europe after weak Asian demand, falling Middle East crude prices and lower Middle East premiums reduced the price difference with Atlantic Basin supply. Two traders said that Murban is cheaper than U.S. West Texas Intermediate (WTI) crude for European buyers, as demand in Asia has been weak. Since early June, traders have reported that the arbitrage between U.S. WTI and Asia has closed, which puts pressure on U.S. benchmark grades. WTI Midland, west Texas, traded at a premium on Tuesday compared to the same grade of oil in Houston for the very first time since May as export demand declined on the back of a rapidly closing window. (Reporting from Siyi Liu in Singapore and Florence Tan in Houston, with additional reporting by Georgina McCartney in Houston. Editing by Clarence Fernandez.)
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Gold stable as US-Iran details emerge; Fed verdict is awaited
As details of a U.S. Iran agreement were revealed, and as investors awaited the first Federal Reserve policy meeting by Kevin Warsh, gold prices remained largely stable on Wednesday. As of 0610 GMT spot gold was unchanged at $4,328.48 an ounce after hitting a high of $4370.82 one week earlier. U.S. Gold futures for August delivery fell 0.1% to $4,348.20. Donald Trump claimed that the agreement between Iran and the United States would prevent?Tehran from developing nuclear weapons. A U.S. official stated that Iran would be permitted to sell oil. Prices of oil remained near their lowest level in three months on the expectation that Iranian supplies would be available, which eased inflation concerns. The rally in gold is fading as all eyes are on the Fed's monetary policy announcement (at 1800 GMT), said Ilya?Spivak, Tastylive's head of global macro. "Traders are still unsure how he will reconcile a hawkish track record with rising inflation and the White House's demand for a dovish turn." The majority of Fed policymakers believe they must keep short-term borrowing rates in the United States on hold for the entire year. Projections due later today are expected to reflect this. A small number have penciled in a rate increase to prevent a spike in inflation. According to CME FedWatch, traders see a 59% likelihood of a U.S. interest rate?hike for December. This is down from 70% the week prior to the announcement of the U.S. Iran peace deal. When rates are high, gold tends to lose its appeal as it doesn't yield any?interest. In a recent research note, Westpac analysts wrote: "Over the long term, structural support is expected to continue, driven by continued Asian demand, and central?bank purchasing as a hedge for?geopolitical risks and policy risks." Silver spot rose by 0.2%, to $70.32 an ounce. Platinum fell 0.9%, to $1,787.87. Palladium dropped 0.5%, to $1,344.46. (Reporting and editing by Noel John, Bengaluru. Sherry Jacob Phillips, Eileen Soreng, Harikrishnan Nair, and Rashmi aich)
The IEA predicts that the gradual recovery of Hormuz will tip into a significant 2027 surplus
The International Energy Agency's monthly report on the oil market said that the world oil market would recover?gradually? from the Strait of Hormuz closure before tipping?into a?significant? surplus in 2027.
U.S.-Iran reached an agreement on ending the three-month war. This includes 'Iran reopening Strait of Hormuz, and the U.S. lifting its naval blockade.' This could potentially bring an end to what is the largest oil -supply disruption ever, with Middle East oil production being cut by over 14 million barrels a day, according to IEA.
The agency that advises industrialised countries said, "If the deal holds, then exports and production in the Gulf will gradually recover - not to mention the fact that Iranian oil exports could resume fully once the U.S. ban is lifted."
In its first look into '2027', the IEA predicted that global oil production would increase by 8 million bpd, while demand would only rise by 2 million bpd.
This'may provide a welcomed respite for the market, and an opportunity to replenish depleted inventories or to build new strategic reserve, as countries review their energy policies and strategies in response to crisis.
(source: Reuters)