East-West LPG arbitrage is closed with the exception of the USG.

I note that Saudi Aramco’s biggest competitor in the LPG market is now freight with Baltic VLGC spot rate is assessed at $128/mt while Japan/MEG LP spread is below $122/mt.
Freight is rich/a very slow bbq season is priced in the USGC, will be funny to see how things will go.
May/Jun VLGC Seasonality appears fully priced (markets believe that reduced demand will lower prices in the U.S and create arbitrage between east and west).

 

2014/04/23 $/MT Mt Belvieu/".." spread Freight Houston-"…" RV ($/MT) ARB US/".."
JAPAN CHIBA CFR 910 -$335/mt 218 37 $/MT
ARA CNF 768 -$193/mt 84 29 $/MT
Persian Gulf FOB 788 -$213/mt 135 (2) $/MT
Mt Belvieu TX Hub 575

Source: Data compiled from Platts, Argus, Clarkson.

Platts states its LPG FOB assessment for Houston is at +$80/MT over the non-liquid storage tank ex Mt. Belvieu, TX.

2014/04/23 $/MT Persian Gulf/Japan spread Freight Persian Gulf-"Chiba" RV ($/MT) ARB
($/MT)JAPAN CHIBA CFR 910 122 $/MT 128 $/MT (6)
Ras Tanura FOB 788

 Source: Data compiled from Platts, Argus, Clarkson.

What traders and markets will do, take down freight ? LPG fleet owners have an opportunity to lock their rates for the rest of the year at record high.

 What owners will do to lock 1 Yr TC rate ? Surf this wave ?! Conditional to have a loading date in Houston and charter a LPG tanker, an arbutrage is still possible for traders between ARA-Houston and Japan-Houston.  However, spots for LPG cargoes are extremely limited in the USGC. Targa Resources and Entreprise Partners terminals have only capacity for shipping 8 VLGCs cargoes per month each.
Among the reasons for the U.S LPG discounts on world’s markets are the surge of NGLs production from the shale gas drilling and a LPG infrastructure jam-lock in the Gulf Coast.

 

arbitrage

 

The OPIS Swap Futures Curve for Mt. Belvieu is already pricing an easing of the Bottleneck in the USGC for 2015.

 

Mr. Simon Jacques 

Expert on commodities trade and shipping based in Canada, author of The Trade, Shipping and Finance Wizard

 

Is a T/A arbitrage open for U.S coal?

Today an excellent guest post by Mr. Simon Jacques a commodity trade and shipping expert from Canada, partially inspired by our post on coal becoming an increasingly important energy source for “green” Germany.

As reported  in “Coal conquering German energy market”, despite Germany’s effort to invest in green technologies, coal became a basis for satisfying Germany’s energy needs, unexpectedly taking over nuclear energy. One of the reasons for such development is a cheap price of American coal on the global markets, and a capacity of coal/green energy mix supply to react fast to changes in demand for energy on the German market.

The EU doesn’t like coal energy but apparently European traders are pragmatic and see value in the coal piles. Traders from the European utilities sector are increasingly interested into moving “not sexy coal” from U.S to Europe.

RWE Supply & Trading, the trading arm of RWE, Germany’s second-largest utility recently began trading physical and financial coal in New York.

Trafigura, the Amsterdam-based trading firm, said they were investing in a Louisiana coal terminal because they believe ”U.S. coal terminals are maxed out, and there is excess demand to be served.”

Is a T/A1 coal arb open between U.S and Europe?

Coal is a very difficult market to analyze on a fundamental basis. On 2014/04/17, steam coal at Hampton Roads was assessed by PLATTS at $82.25/mt (on 6,500 NAR2 and 1% S02 basis). On basis used in ARA, (6000 NAR, <1% S), it’s a $75.92/MT equivalent.  In April, after a sell-off in the freight market, spot rates for a coal voyage delivery HAMPTON ROADS ARA REDEL HAMPTON ROADS were below $7.50/MT.

Panamax

Dry-Bulk Freight sell-off

The total implies $83.42/MT for U.S STEM COAL CNF3 ARA. Meanwhile, Argus/McCloskey ARA stem coal contract (6,000 NAR 1% sulfur) was traded at $77/MT and physical trades were assessed around $84/MT. Despite depressed freight rates, coal markets in the Atlantic basin appear fairly priced and the arbitrage window for U.S coal in ARA appeared closed.

However on the U.S Central Appalachia market (or what traders also called CAPP), CSX coal Big Sandy/Kanawha (12,500 Btu/lb. 1% sulfur Index) was at $60.58/ST or $66.77/MT. On a 6,000 kcal/kg NAR 1% sulfur basis, this is $57.68/MT. The T/A arb based on the ARA-CSX spread now appears greater than rail cost $18/MT and ocean freight rates $7.50/MT combined.

In conclusion, ocean freight and coal prices between ARA and Hamptons Roads appeared fairly priced and the T/A arbitrage was not explicitly evidenced in freight and spreads.

However, a T/A arb of $.82/MT (on a 74,000 MT voyage is $60,680) seems to be priced between CAPP and ARA. Coal traders’ arb profit doesn’t hinge in ocean freight rates but more in rail and blending optimization. All other factors being held constant, this arbitrage is likely to favor an increase in ARA stocks and to depress ARA steam coal curve.

 

Simon Jacques4

1. T/A, abbreviation for trans-Atlantic

2. NAR (Net as-received basis) – A basis determining the amount of energy a coal contains and is the as-received energy minus the amount of energy required to vaporize the moisture in the coal, in Kcal/KG. In Coal trading, NAR are essential to quoting and to calculate blending optimization.

3. CNF - Cost and Freight

4. The Trade, Shipping and Finance Wizard, Navigate the commodities markets with Freight and Spreads, jacquessimon506.wordpress.com

What’s new with Polish refineries

OrlenIt has been an old Polish decision makers dream to build vertically integrated oil companies with its own upstream operations. It sparked the decision of Polish oil companies to get involved in search for shell gas deposits in Poland along much more experienced (at least in upstream business) competitors from abroad. PKN Orlen with its Orlen Upstream subsidiary registered in Holland was particularly active in pursuing this opportunities. It became quiet deeply engaged in search for Polish gas deposits, while American giants as Exxon, Marathon or Talisman stepped back from the competition. Lotos on the other hand has been continuing a search for Oil on the North Sea despite the fact that the defeat of its previous project of similar profile on the Yme field, costed a company around a billion PLN. However this time Lotos bought shares of the fields which are much more likely to yield expected results. Lotos is also taking steps into direction of developing B8 fields on the Baltic Sea, which has been in dire need of investments since some years already. Reportedly Polish Investments for Development S.A. government institution created to support pursuits of domestic companies will extend a helping hand. Lotos is also considering along with Azoty Group to invest in development of petrochemical installations, also with a possible governmental backing.

 

Physical Traders Blog

Coal conquering German energy market

germany

The evolution of German energy market may surprise considering the country’s effort to invest in green technologies and promote/export them abroad. Brown coal became a basis for satisfying Germany’s energy needs, taking over a nuclear energy. Brown coal consumption in this country is highest in its history, while Germany stays its biggest producer.  Coal stone which Germany is supposed to stop using as an energy source according to ambitious plans of politicians, increasingly replace natural gas in domestic energy industry.

One of the reasons for such development is a cheap price of American coal on the global markets, and a capacity of coal/green energy mix supply to react fast to changes in demand for energy on the German market.

 

 Physical Trader Blog

Molybdenite trade

On the world’s market molybdenite concentrate, ferro molybdenum, molybdenum oxide and molybdenum metal is being actively traded. Data related to molybdenum products trade is quiet obscure. However with a degree of certainty we can conclude that molybdenum products are mostly traded in between, Europe, China, Chile, USA and Canada. Overall trade volume is estinmated in the range of 250 000 tonnes, and is growing quiet steadily since beginning of year 2000 (by over 30% to date). Producing countries who extract molybdenite and supply molybdenum products on the market are mainly Chile, US, China, Peru, Canada and Mexico. Concentrates are most actively traded with a share of over 60% in the whole market structure.  Around one quarter of market for molybdenum products is reserved for ferro molybdenum. Both molybdenum oxide and molybdenum metal constitutes each below 10% of market structure. In recent years China quiet substantially decreased output of their molybdenite products on a global market, consuming more  directly on the domestic market.

Physical Trader Blog

Fluorite (fluorspar)

More on fluoriteFluorite (fluorspar) (in other words mineral form of Calcium Fluoride CaF2) is used in chemical industry, metalurgy, nuclear energy,
production of ceramic, glass and cement. One of the interesting characteristics of fluorite is its ability to decrease a temperature of melting point of metals. It is particularly widely applied in metalurgy in the process of steel production, because of this very quality. Fluorite is also employed in the production of various compounds applied later in the process of aluminium smelting. One cannot talk about industrial applications of fluorite without mentioning its role in obtaining of HF – Hydrogen Fluoride, gas extensively used in petrochemical industry, whose acquisition process can be crudely described as the implementation of sulfuric acid on pure grades of the mineral fluorite.The grade of fluoride used in the gas production is called acide grade fluoride and consist over 97% of CaF2. The process of alkylation in oil refineries can not do without it as a catalyst. 70 % of world’s Calcium fluoride reserves are located in China, South Africa, Russia, Mexico and Mongolia. It is also worth taking a note that 23 % of world’s reserves controlled by China, are in 90 % included in the deposits located in Chinese Inner Mongolia region. This way of thinking gives us even a clearer picture on the geographical localization of fluorspar. Speaking of fluorite it is hard not to mention a Bayan Obo Mining District, extremely valuable deposit of rare earths and also reportedly world’s biggest deposit of fluorite amounting to the volume of 130 million tonnes. However according to informations available fluorite is not being extracted from there. In South Africa considerable deposits can be found in Transvaal region in North-Western provinces. Witkop, Doornhoek Mines particularly deserves attention. In Mexico, Las Cuevas constitutes the biggest fluorspar mine in the world. For the future of fluorite extraction industry, key moves take place in China, due to its ongoing ecological survey on the wide scale. However informations acquired are rarely published to public attention. Foreign companies are also forbidden to extract fluorite in China.

 

Physical Trader Blog

Zinc concentrate

The word “zinc” derives from latin and means a white thin layer on the object. Zinc is particularly renowned for its resistance to corossion. Application of zinc to steel elements increases their resistance from three to even four times. Naturally steel can be also covered with chrome or nickel to reduce its propensity for corrosion, but technologies which make it happen are more expensive. Hence in crucial industries as construction or automotive industry (car’s bodies production) zinc is being applied as anti-corrosive. Zinc is also used as an alloy with copper to increase qualities of copper’s key mechanic characteristics. The most widely spread mineral ore of zinc is Sphalerite. 95 % of world’s zinc reserves are contained in sphalerit. 72 % of world’s zinc reserves are located in 9 jurisdictions: China, Australia, Russia, Canada, Peru, USA, Kazakhstan, Mexico and India. For China falls 14% of world’s zinc reserves. Most of it is located in provinces of Yunnan, Gansu, Guandong, Sichuan and in region of Inner Mongolia. Australia occupies second place as world’s reservoir of zinc’s ore with estimated resources of 83 millions tonnes (proved resources amounts to one quarter of this number). It is estimated that it’s enough to
proper the countriy mining industry for the next 35 years. As it was hinted before, zinc is extracted from sulfidic ore deposits, in which sphalerite is mixed with the sulfides of copper, lead and iron. In the post-minig process zinc’s concentrate is obtained. Zinc’s concentrate producing has been growing worldwide for the last 20 years. The only thin years have been in between 2001 and 2002, when due to zinc’s price fall on the global markets the industry production volume stopped growing and even slightly fall. However quickly resuming an upward trend shortly after. In 2008 total zinc concentrate output was at the level of 11676,7 thousands tonnes. Therefore since the “thin days” output had grown by 31,3%! Naturally major role here has been played by China, but also countries as Sweden, Ireland, Namibia or Brazil increased their outputs. China, Peru and Australia are the main players on the concentrate’s market. China’s zinc concentrate producers market is quiet fragmented. It is worthwhile to note that most of Chinese plants have capacities to produce not more than 10 thousands tonnes of concentrate per year. Because of its fragmentation Chinese zinc concentrate industry is sensitive to price changes on the world’s metals markets. Peru’s industry for zinc concentrate is noticing a rather spectacular growth, major companies on these market being: Compania Minera Antamina SA (deriving its ore from the local – Antamina mines) and Volcan Compania Minera S.A.A. Produced concentrate is transported from the sites 300 kilometres to the coast of Pacific Ocean, where it is being despatched worldwide.

Physical Trader Blog

Aluminium price history and aluminium price discovery

Aluminium price1Raw Aluminium is sold on 4 major market places: LME (London Metal Exchange), COMEX (New York), Shanghai Metal Exchange and Tokyo Commodity Exchange. The biggest volumes of Aluminium are traded at LME. Price of Aluminium on LME, is one of the most important if not the most important point of reference for global physical aluminium trade. Aluminium traded on LME is physically situated in warehouses at marine ports located in Western Europe, United States of America’s East and West coasts, Japan, Malaysia, Singapore and South Korea. The prices on LME include transportation costs to the the place of destination, what makes them differ in comparison to other exchanges. On LME aluminium is traded on spot, futures and options markets. One way or the other, around 10% of all aluminium produced worldwide is traded on LME. With no regard to the fact that majority of aluminium is traded directly in between two parties or through intermediaries (physical trading companies and trading houses), its price is fixed based on long term contracts or linked to the quotes on LME. Because of certain degree of inertness involved in the aluminium production, deriving from the fact that commencement and stoppage of production capacities increase costs and requires time, supply does not react quickly enough to changes in demand. From time to time it leads to yet another crisis as a result of oversupply or to a significant spike of prices linked to the deficits of aluminium on the worldwide markets. Equally significant in the process of price establishment are the changes in prices of Aluminium Oxide (Alumina) which is being processed in order to obtain an Aluminium and the prices of electricity. If we have a closer look on the cost structure in aluminium production industry, we could observe that up to 50% of costs is generated by the purchase of Aluminium Oxide and up to 30 % is spend on electricity during a production process. Naturally, paper trading and its propensity for speculation also influences price establishment on physical markets. Price of Aluminium Oxide (Alumina) usually reflects 13-14% of Aluminium price as traded on LME. In case of deficits of Alumina on the global markets, its price may hike even to the level of one quarter of Aluminium price. On the spot market Alumina is mostly sold from Australia, hence the prices are usually quoted on the basis of FOB Australia. Price of Bauxite is connected to demand for alumina and depends on the amount of bauxite available on the market. World’s bauxite reserves are quite large and deficit of this ore, resurfacing from time to time is relatively quickly filled with extraction of new reserves. Until the middle of 70′s, even with widening of possibilites for applications of aluminium (with expanding automotive and construction industries), prices remained rather stable at the level of 500-600 USD per tonne. Then the rise of prices for many commodities started (with oil boom in the background) and the price of aluminium in the beginning of 80′s reached new heights with a level of over 1670 dollars per tonne. Such peak in prices consequently led to drop of demand for aluminium, crisis in its production industry and increase of its warehouse levels. Through 80s prices have been rather turbulent, with simple scheme following. Too high prices led in the end to decreasing demand and consequently with some lag to decreasing production output. Then prices were coming down, but never for long, since aluminium has been fast becoming scarce on the market, at least scarce in view of its growing applications in various industries. Anyway in the beginning of the 90′s prices became balanced somewhere on the level of 1630 dollars per tonne. Fall of Soviet Union has had a massive effect on aluminium prices. First of all, the markets have been flooded with Russian aluminium. In 1990 in warehouses of LME there was 310 000 tonnes of aluminium, in 1993 amounts went up to 2,5 millions. Naturally it led to fall of prices, that stopped somewhere at a level of 1140 USD per tonne. In 1994 major producing countries agreed on cutting down the outputs (as a consequence output volume fall by roughly 3 %). Through the time it quiet quickly led to decreasing warehouse levels, and increase in prices. Another hit has been caused only later by an Asian crisis, but also here we could observe a fast rebound.

To be continued.

Physical Trader Blog

Physical bauxite and aluminium trade

85 % of extracted bauxite is being further processed to obtain aluminium oxide (alumina) and further the aluminium itself. In the last twenty years the structure of demand for aluminium has changed. With implications for physical trade of bauxite and aluminium. Particularly increased its application in production of aircrafts (up to 80% of passanger airplane weight might be aluminium), vessels, cars and packaging. Looking by jurisdictions, in USA most of aluminium has been used in automotive industry, in Europe and Brazil in production of packaging. In India almost half of aluminium is applied in electrotechnical industry (sometimes replacing copper, since aluminium posses up to 65% of its conductivity, but is 3 times ligher) especially in the construction of large conductors. In automotive industry application of aluminium, decreased a weight of cars by 10 %, while vessels in which aluminium is applied can decrease their weight down to 60% in comparison to their counterparts build with other metals, without diminishing their load carring capabilities. In construction industry, employment of aluminium elements is especially important in difficult conditions (like low temperature, high seismicity). Forecasts for aluminium demand in China remains good in the long run. China remains the bigest consumer for aluminium, for many years Chinese growth of demand for aluminium exceeded its domestic production by 1.2 fold. China needs aluminium in construction and electrotechnical industries. Also due to still growing electrification of less developed regions. Russia has been historically a major consumer of aluminium in such areas as defence industry and automotive sector. However through 90′s these trend has changed and a structure of consumption of aluminium in Russia resembles nowadays most of the countries in western Europe (namely construction and packaging sector).

In physical trade of aluminium, we can discern international trade of bauxite, trade of alumina (aluminium oxide), trade of raw aluminium and trade of aluminium scrap. In the last 20 years 35 % of extracted bauxite has found a place on the international market. Majority of bauxite is being traded physically based on long standing contracts. Significant growth of trade on international markets could have been observed in between 2005 and 2008 when extraction of bauxite increased in Jamaica and Indonesia. From data available from before the crisis, 72 millions tons of bauxite has been exported globally, 90 % of the figure has been exported from Guinea, Indonesia, Jamaica, Australia and Brazil. Financial crisis affected physical trade of bauxite quiet significantly. In 2009 only 48 millions tonnes has been exported. The worst hit was India, with its bauxite export decreasing by 13 times. Countries that are the biggest importer of bauxite in post-crisis era, are China and USA. Ukraine, Spain, Canada, Ireland and Germany are significant importers on worldwide markets. As far as bauxite “products” are concerned, more than half of produced alumina (aluminium oxide) has been traded internationally, but only 10 % has been traded on spot market. Major part of alumina has been sold based on long-term contracts. Australia is a definite leader in export of Alumina, (exporting over 40% of volume traded globally). Here Jamaica does not boast results mentioned previously in the bauxite trade, delivering only 8 % of the volume. Brazil still remains an important player in this sector. As far ast the most processed product is concerned, the global structure of trade of raw aluminium and aluminium scrap, looks as follows, major exporters are (listed by decreasing volume): Russia, Canada, Australia, Norway, China, Spain and Brazil. On the receiving side, major counterparties in this business are located in Japan, USA, Germany, South Korea, Netherlands, Turkey, Belgium, France and Taiwan

Physical Trader Blog

 

Bauxite reserves and extraction.

Bauxite mineAluminium, one of the most wide spread metals in the earth crest. For the first time extracted in 1825 with aluminium industry coming into existence not earlier than half century later. In 1888 first aluminium producer employing electrolysis has been established in Switzerland. In the beginning of the XX century, industry obtaining aluminium through electrolisis has been already functioning in 6 countries (namely in Switzerland, USA, France, Germany, UK and in Austria). In 1941 through production of aluminium by electrolysis, worlwide output exceeded  1 million tons/per annum for the first time, in 1971 production reached a level of 10 millions tons/per annum and in 2005 over 30 millions tons/per annum. Therefore only after 100 years of the first amounts produced, aluminium became second metal in production by volume, right after iron. This growth has been accelerated by its unique characteristics . Its high conductivity, high immunity to corrosion and high plasticity. Nowadays application of aluminium can be well observed in automotive, aircraft and ship industries, packing industry, construction, electronic industry and in consumer goods. One could argue that application of aluminium permeated all areas of human activity, hence the correlation can be derived between the growth of world’s gdp and a growth of aluminium’s demand, while its average consumption per head might be treated as an indicator of quality of living conditions in the given country. Bauxite, an aluminium ore secures almost 98 % of aluminium production world-wide. The deposits of bauxite has been spread around the world (as is the case with many commodities) unevenly. Huge deposits might be found in tropical and subtropical areas. Identified resources of bauxite can be found in 44 countries and amount to approximately 49,3 billions tonnes. The countries  richest in bauxite reserves are Guinea (19% of world’s reserves), Australia (18%), Vietnam (10%) and Brazil (9%). Considerable reserves of Bauxite can be also found in China, Jamaica and Russia. In Guinea, Futa Jallon–Mandingo province is definitely the best endowed, with resources economically viable for extraction, amounting to 7,1 billion tons. Bauxite from Guinea is also of high quality, some of its ore consist high levels of aluminium oxide reaching a level of 69%. To illustrate that, in Vietnam for instance the level of aluminium oxide  (alumina) on average reaches 35%. In Jamaica the bauxite is spread on around 30% of the terrain and considering today’s outputs, the country has enough to go for the next 100 years.  Russia’s bauxite reserves are located in the European part of the country and in Ural. 95 % of bauxite that might be used industrially is located in Russia over 700 metres below the ground, while 50% stays on the level of 1000 to 1200 meters below the ground. In Russia, majority of available bauxite is of lower quality with high levels of chrome, what is a cause of the situation when only 10% of extracted ore is applied in production of aluminium. In China, 375 sites with resources have been identified. They were situated mostly in Eastern and Southern part of the country.  Bauxite in China is usually of lower quality. What might add to the reason why China, with its growing aluminium industry became world’s biggest importer of bauxite. The resources of high quality Bauxite located in African countries seem very attractive at this stage, however issues  with undeveloped infrastructure, low density of industry requiring aluminium in their relative proximity, as well as risky environment for investment, make them remain unused. Nonetheless opportunities for the future remain, especially considering recent rebirth of business opportunities on this continent.

98% of bauxite in the world is being strip mined and only in Russia and China some of the sites operate as subterranean mines. In 2008 220 millions tonnes of bauxite has been extracted hence bauxite extraction increased over two folds from the 80′s. One-third of world’s bauxite output is extracted in Australia.

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