The oil majors face a major dilemma

– Oil majors face a difficult dilemma as the investing community anticipates Q3 2024 results, as most would find it very difficult to replicate last year’s performance when they paid out more than $272 billion in dividends and share buybacks .

– Share buybacks should be reduced as Chevron, ExxonMobil and TotalEnergies would each need to borrow $5-8 billion to maintain the current pace of buybacks, with ENI most likely offsetting some of that pressure through asset sales.

– BP stands out among oil majors because it already has the highest debt ratio, with net debt of $22.6 billion against a market capitalization of $85 billion, making it highly unlikely that it will be able to complete the $14 billion buyback program by 2025.

– US major ExxonMobil has already signaled that the drop in oil prices in August-September cut its upstream revenue by $600 million to $1 billion, compounded by hurricane damage and weakening refining margins.

Europe’s supply options expand as Libya lifts oil embargo

– Libya’s eastern government, based in Benghazi, announced it had lifted force majeure on all oil fields, ports and infrastructure as of October 3, allowing nationwide oil production and exports to resume.

– Refiners in Europe will heave a sigh of relief as the nearly two-month oil embargo has slashed Libyan output by about 750,000 b/d, pushing prices of light sweet products to multi-year highs.

– As Kazakhstan cuts output to comply with OPEC+ offset measures, the main light-grade CPC blend from the Mediterranean began trading at a premium to dated Brent, the highest level in seven years, in while Azerbaijan’s Azeri Light was nearly 5 per barrel above. Brent.

– Libya’s rival governments have agreed to name Naji Essa as the new head of Libya’s central bank, the key instrument in reallocating oil revenues, replacing Siddiq al-Khabir who fled the country after the oil blockade began.

Is aluminum set for a huge price squeeze?

– The aluminum market is showing signs of extreme tightening as the LME October November contract premium rose to $18 per metric ton, a complete reversal of the cuts seen earlier this year.

– There is additional upside in aluminum prices if bears fail to recover their exposure and would face the need to settle at expiration (October 16) via physical delivery.

– While there is no direct indication of who it might be, LME data indicates that one trading side is massively long in October, accounting for more than 40% of market opening interest.

– Complicating matters further for aluminium, the vast majority of LME aluminum stocks are held in warehouses in Port Klang, Malaysia, 74% of total stocks, with the majority of these volumes being ready for delivery, creating the basis for a perfect storm.

Droughts increase pressure on food prices

– The Bloomberg agriculture spot index posted a 7 percent monthly gain in September, the steepest monthly gain since the early months of the Russia-Ukraine war, as extreme weather pushed agricultural commodities to record highs.

– Severe droughts in Brazil led soybean futures to their biggest monthly gain in two years, while Arabica coffee rose to its highest level since 2011 as a lack of rain also affected the crop’s flowering period.

– While wheat prices have been relatively supportive in recent years, wheat futures also rose in September as Australia’s crop was hit by frost and a prolonged lack of rain limited plantings in Russia and Ukraine.

– Representing about a third of the world’s total coffee and soybean supply, Brazil is experiencing its driest weather since 1981, with nearly 60% of the country’s territory affected.

China has an unlikely new mining champion

– Starting in 1982 as a gold-seeking expedition, Zijin Mining Group is set to become China’s biggest metal producer, potentially even matching BHP in terms of copper production, as the Chinese firm expands globally.

– Becoming the sixth largest copper miner globally by equity, Zijin production has tripled over the past five years, mainly due to new mines and operations in Africa, the Balkans and at home.

– The company has come under increasing pressure from the US, having been hit with sanctions in August over allegations of the use of forced labor in Xinjiang, however, it is unlikely to derail production growth that is believed to take production of Zijin’s copper to 1.6 million tonnes by 2028, up from 1 million tonnes last year.

– Unencumbered by the regulatory constraints of Western companies, Zijin has outperformed all its peers over the past decade, reaching a market capitalization of $67 billion, less than half that of BHP Group.

China’s stimulus package has yet to lift bearish steel sentiment

– Global steel output marked its second consecutive year-on-year decline as production totaled 144.8 million tonnes in August, down 6.5% from a year ago as China curbed its ambition of steel.

– The decline in China’s steel production is even sharper than the global average, down 10.4% year-on-year to 77.9 million tonnes, effectively defying the usual seasonality of China’s steel demand, which tends to reach peak in September.

– While the economic stimulus from Beijing could boost the housing market until 2025, the physical effects of this recovery will only appear in Q1/Q2 next year, as the housing market continues to fall further and further, with sales currently 22% below the following year’s levels.

– Iron ore futures rose more than 10 percent after China unveiled its stimulus measures, with the Dalian contract now up at $117 a metric ton, although hot-rolled steel prices rose just 3 percent in September.

The future of Europe’s carmakers hangs in the balance

– As European carmakers pioneered the energy transition and a rapid proliferation of electric vehicles, they now face headwinds as the specter of economic recession and falling sales threaten their profitability.

– Sales of electric vehicles fell 36% in Europe in August, with the region’s biggest car market in Germany falling much more, posting a staggering 69% drop in sales compared to a year ago.

– Germany scrapped its $5,000 subsidy for the purchase of new electric vehicle sales at the end of 2023 as the fiscal impact of the subsidy exceeded $11 billion, causing an almost immediate loss of interest in electric vehicles.

– Carmakers have reacted by closing factories that were previously upgraded to produce electric vehicles, with the potential closure of Audi’s Brussels plant already sparking nationwide protests in Belgium.