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Yahoo
26-03-2025
- Business
- Yahoo
Trucking, copper, cocoa: volatility roils commodities
The ongoing geopolitical realignment and escalating trade tensions are sending shockwaves through global commodity markets, reshaping long-established trade routes and supply chains. From copper to cocoa, and even the U.S. trucking industry, these shifts are creating both challenges and opportunities for businesses and investors alike. The most visible impact of the trade wars has been on major freight flows, particularly in the crucial eastbound trans-Pacific ocean container lane connecting Chinese exporters to U.S. importers. This vital artery of global commerce has seen weaker volumes and falling rates, with the Freightos Baltic Daily Index showing rates at $2,188 per forty-foot equivalent unit, the lowest since December 2023. This decline reflects the uncertainty and disruption caused by protectionist policies and retaliatory measures between the world's two largest economies. However, the ripple effects of these trade tensions extend far beyond container shipping, touching various commodity markets in profound ways. Perhaps nowhere is this more evident than in the copper market, where the threat of U.S. import tariffs has created unprecedented arbitrage opportunities and is reshaping global supply dynamics. Copper, often referred to as 'Dr. Copper' for its ability to predict economic trends, has seen its U.S. futures prices surge to record highs on the Comex exchange. This dramatic price action is driven by traders pricing in the possibility of hefty tariffs on the crucial industrial metal. The price gap between U.S. copper futures and the global benchmark on the London Metal Exchange has widened to record levels, creating a powerful incentive for traders to shift copper into the United futures prices have reached a new record on tariff fears. (Chart: Bloomberg) Kostas Bintas, head of metals trading at Mercuria Energy Group Ltd., estimates that 500,000 tons of copper is heading to the U.S. in March, compared to normal monthly imports of around 70,000 tons. This massive inflow is leaving the rest of the global market, particularly top consumer China, facing a potential shortage. Bintas predicts that this unprecedented situation could drive LME copper prices to over $12,000 or $13,000 per metric ton. The copper market's dislocation highlights how trade policies can create unintended consequences and market inefficiencies. While U.S. manufacturers may face higher input costs, traders with the ability to navigate these complex dynamics stand to reap substantial profits. Meanwhile, the global copper supply chain is being reshaped, with potential long-term implications for producers, consumers and investors worldwide. While the copper market grapples with potential shortages, the cocoa market faces a different set of challenges stemming from historically high prices. Cocoa futures nearly tripled last year due to supply concerns from West Africa and are currently trading near $10,000 a ton in New York. These sky-high prices are having a significant impact on chocolate manufacturers and consumers futures have experienced extreme volatility. (Chart: Bloomberg) JPMorgan Chase & Co. analysts have trimmed their deficit estimates for the current 2024-25 cocoa season to 40,000 tons, down from their earlier forecast of 108,000 tons. This revision is primarily due to an expected 1.8% fall in demand as historically high cocoa prices deter consumption. Chocolate makers are feeling the squeeze, with recent earnings reports suggesting that previously resilient demand is weakening. Cocoa price volatility is being driven by a mix of supply-side challenges and market dynamics. Extreme weather, particularly in West Africa, which produces about 70% of the world's cocoa, has hammered yields. Droughts, heat waves and erratic rainfall – linked to climate change and events like El Niño – have stressed cocoa trees, while diseases like the Cocoa Swollen Shoot Virus have wiped out significant farmland, especially in Ghana and Ivory Coast. Aging tree stocks and underinvestment in farms compound the problem, keeping supply tight. On the demand side, global appetite for chocolate remains strong, but recent data shows grinding (processing) hasn't fully offset deficits, with three consecutive years of shortfall. The 2024/25 season might see a slight surplus, but inventories are still low, leaving little buffer. Market mechanics amplify this: Low liquidity in futures trading, driven by speculative funds and algorithmic trading, has led to wild swings – prices hit $12,000 per ton in April 2024 before crashing 27% in a single day due to margin hikes and position unwinding. Structural issues, like concentrated supply from just a few countries and regulatory shifts (e.g., the EU Deforestation Regulation), add uncertainty, keeping volatility high. High prices might eventually spur more planting, but that takes years to pay off, so the roller coaster isn't stopping anytime soon. Turning our attention to the United States, we find that the trucking industry, often considered a commodity itself, is also feeling the effects of these broader economic shifts. The U.S. trucking market has experienced significant volatility in recent years, with the pandemic creating unprecedented challenges in securing transportation capacity. Current data indicates that the U.S. truckload market is nearing a state of equilibrium between supply and demand, a balance not seen since 2022. This shift is exemplified by the Outbound Tender Reject Index (OTRI), which tracks the percentage of truckloads that carriers reject. Since May 2023, this index has displayed a gradual but consistent upward trend, signifying a move away from the oversupply that previously characterized the market. Rejections have outpaced spot rates, suggesting that spot rates will likely increase. (Chart: SONAR. To learn more about SONAR, click here.)The national outbound tender rejection rate ( which measures the percentage of truckloads that are electronically tendered by shippers and rejected by carriers, has climbed to 6.88%, near the level that we consider to be inflationary for spot rates. Meanwhile, the National Truckload Index ( SONAR's national average truckload spot rate inclusive of fuel, stands at $2.25 per mile, continuing its downward trend since its most recent peak at $2.53 per mile on Jan. 11. In other words, tender rejections have diverged upward from the spot rate trend, opening up a gap. Typically, after tender rejections move (either up, when capacity is tightening, or down, when capacity is loosening), spot rates follow in the same direction. When capacity is tightening relative to demand, rates go up; when capacity is loosening relative to demand, rates go down. For that reason, we believe that truckload spot rates are set to go up. The Outbound Tender Reject Index shows the percentage of truckloads rejected by carriers. (Chart: SONAR. To learn more about SONAR, click here.) In regions like Dallas and Atlanta, the OTRI figures have surpassed the national average, at 9.9% and 8.53%, respectively. This indicates tighter capacity, with carriers in these areas more frequently rejecting tenders. The underlying reasons for this increase can be traced back to a convergence of reduced capacity and shifting priorities among carriers who now favor loads offering better financial returns. The focus has been on maximizing operational efficiency amid fluctuating demand. Furthermore, specific areas like the Pacific Northwest have seen a notable rise in the Flatbed Outbound Tender Reject Index (FOTRI), driven in large part by strategic cross-border timber and lumber shipments to Canada in anticipation of impending tariffs. This increase highlights the targeted manner in which capacity is being allocated according to market conditions and anticipated economic pressures. The truckload market's incremental move toward equilibrium displays a restrained but deliberate tightening as capacity adapts to the current economic landscape. While this realignment presents challenges, particularly in securing optimal loads and building density in desirable lanes, it also underscores the market's ability to adjust and respond to prevailing economic conditions. Notably, while tender volumes have declined significantly in recent months, rejection rates have remained relatively stable. This suggests that the truckload market has tightened more than many realize, with carriers becoming increasingly selective about which loads they accept. Large fleets have been parking and selling trucks over the past year, with enterprise carriers like Werner and Marten Transport reporting significant reductions in tractor counts. The ongoing geopolitical realignment and trade tensions are reshaping global commodity markets in profound and often unexpected ways. From the copper market's unprecedented arbitrage opportunities to the cocoa industry's struggle with record-high prices, and the U.S. trucking market's delicate balance, these shifts are creating a new landscape for businesses, investors and policymakers to navigate. Perhaps the only safe bet to make right now is on more volatility, for longer. The post Trucking, copper, cocoa: volatility roils commodities appeared first on FreightWaves.
Yahoo
23-03-2025
- Business
- Yahoo
Copper's Uber-Bull Predicts New Record on Most-Profitable-Ever Trade
(Bloomberg) -- One of the highest-profile copper bulls is back predicting new price records, as Donald Trump's threat of tariffs drains global stocks and creates what he sees as unprecedented opportunities for trading profit. They Built a Secret Apartment in a Mall. Now the Mall Is Dying. Chicago Transit Faces 'Doomsday Scenario,' Regional Agency Says LA Faces $1 Billion Budget Hole, Warns of Thousands of Layoffs New York Subway Ditches MetroCard After 32 Years for Tap-And-Go Despite Cost-Cutting Moves, Trump Plans to Remake DC in His Style Kostas Bintas became one of the best-known metals traders during his years building Trafigura Group's copper book into the world's largest, before his departure in late 2023. Now spearheading a push into metals at energy trader Mercuria Energy Group Ltd., he is again calling for copper to surge to record highs, up by as much as a third from current levels. The huge amounts of metal being drawn into the US will leave the rest of the world — and crucially, top consumer China — perilously short, Bintas said in an interview. 'We think there is something exceptional happening in the copper market,' he said. 'Is it unreasonable to expect a copper price of $12,000 or $13,000? I'm struggling to put a number on it because this has never happened before.' Bintas was one of the first of a growing chorus of traders and investors to predict that copper was about to enter a multiyear bull market in the wake of the coronavirus pandemic, and that rising demand for electrification would outpace supply growth. At Mercuria, he's teamed up with another prolific bull: former Goldman Sachs Group Inc. metals strategist Nick Snowdon, who roughly a year ago was forecasting average prices of $15,000 a ton in 2025. Still, copper bulls have been disappointed on several occasions, most recently last year when prices surged to a record high above $11,000 a ton, only to falter as Chinese buyers stepped back from the market. Now the dislocations caused by Trump's threat of copper tariffs have changed the market dynamic. While the US has yet to impose broad tariffs on copper imports, domestic prices have soared to over $1,400 a ton above the rest of the world, creating a huge incentive for traders to ship every spare ton to the US. 'In terms of the margins per ton, I've never seen a better trading opportunity,' Bintas said. The shift of inventory to the US means the Chinese copper market will be left with insufficient stocks, Bintas said. Chinese buyers — who account for more than half of global demand — will be forced to compete with the US market. At the same time, the large volumes of scrap copper that typically flow out of the US have effectively dried up. 'China has been successful historically in rejecting high prices,' said Bintas. 'This is the first time in recent history that another market is taking tons away from the Chinese market. That's why it's uncharted territory.' Mercuria estimates that about 500,000 tons of copper is heading to the US, most of which is already on the way. That compares with normal monthly imports of about 70,000 tons. Traders are shipping metal to opportunistically profit from the large price differential, as well as frontloading already-planned shipments in order to clear customs before any potential tariffs are imposed. Mercuria itself has 85,000 to 90,000 tons en route to the US. Bloomberg reported previously that some traders have been redirecting shipments from Asian customers to the US. Bintas isn't alone is his bullish call. Investment funds have lifted their net bullish positions in LME copper to the highest since last May, according to exchange data. David Lilley, chief executive of hedge fund Drakewood Capital Management Ltd., predicts that the pull of copper to the US will leave Chinese buyers facing 'much more aggressive competition for metal.' Global copper prices have already risen sharply, with benchmark LME prices up 12% so far this year to $9.855.50 a ton on Friday, and US futures on Comex, inflated by the tariff threats, nearing a record high. The global market is showing some signs of tightness, but not yet indicating the extreme squeeze that Bintas is predicting. On the Shanghai Futures Exchange, copper has moved into the widest backwardation in more than a year, with nearby contracts trading above later-dated ones in an indication of tight supplies. Copper premiums in China have been rising since the end of February, although they remain at modest levels by historical standards. Of course, the prediction for a surge higher in copper prices could be undercut if worries that a trade war could cause a global economic slowdown prove accurate. Mercuria is unconcerned about that risk, predicting that global demand will outstrip supply by 320,000 tons this year, which, together with the draw of stock to the US, could drain a large share of the inventories outside the US. What's more, the tariff threat has caused exports of copper scrap from the US to dry up. About a third of global copper production comes from scrap, and the flow of scrap often acts as a market buffer, rising when prices are high and falling when they are low. 'Already through February, US scrap exports have gone to negligible levels,' said Snowdon, who is head of metals research at Mercuria. 'You're seeing an under-appreciated shock on the global copper market through this scrap channel.' 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