Market Commentary Themes (September to November 2021)
Market Commentary
Energy Costs:
We are seeing a rise in energy costs, particularly in Europe, having an adverse effect on industry. The prices look to remain high through the winter with a few factors leading to a lack of a solution. Uncertainty with the Nord stream 2 pipeline certification and an on-going border conflict between the EU and Belarus, creates uncertainty for the natural gas supply from Russia.
Factors
o Dutch TTF Gas px up ~€80/mw YoY, high of €116/mw in early October.
o Norwegian oil and gas major Equinor (EQNR.OL) said it expected the fundamentals driving high gas prices in Europe to remain in place during the autumn and winter seasons
o Concerns over Russian gas exports to Europe, which represents ~50% of Europe’s gas imports
o Belarus-EU border conflict, leading to threats from Belarus to cut flow from pipeline through Belarus
o Germany suspended certification of Nord Stream 2 pipeline
o US imposed sanctions aimed at Nord Stream 2 pipeline
o Industries across Europe either scaling back or shutting down production
o Adverse effect on the fertilizers and other nitric acid industries
o Increased demand for gas in Asia, with strong economic recovery from COVID lockdowns, drawing energy supplies away from Europe
Shipping Costs:
Record unloading times at ports around the world leading to supply chain disruptions and a backlog of ships waiting offshore
Factors
o 40 ft container costs >$13,000, from ~$1,600 pre-pandemic average
o High of ~$20,500 in September
o Average wait time at Los Angeles and Long BeachPorts >11 days
Chip Shortage:
A global shortage of semiconductor chips leading to a massive slowdown in car production. An already tight market for chips, saw chips diverted to electronics during 2020. Chip production as been slow to ramp up due to natural disasters in Texas and Taiwan as well as surging cases and local shutdowns in Japan and Malaysia. This has made car makers scrambling to secure production and enter into new agreements to develop chips.
Factors
o Chips were diverted to electronics during pandemic
o Chip shortage said to comprise 90% of the manufacturing slowdown of cars
o Drop in vehicle production estimated to reduce Pd demand by 512k toz
o Natural disasters in Texas and Taiwan, and resurgent COVID in Japan and Malaysia attributed to disrupting supply chain
o Ford and GM both entering into agreements to develop and potentially enter production of chips
Work cited:
o https://www.theice.com/products/27996665/Dutch-TTF-Gas-Futures/data?marketId=5325990>
o https://twitter.com/zerohedge/status/1461729364660391940
o Morgan Stanley
