Global everything has risen, whether it is “dead” chips, steel and copper, freight, or “biological” corn, oranges, coffee beans, beef, etc., all appear to varying degrees of “deterioration” The next inflation fears are more than expected.
[Corn price increases hidden worries reappear in the U.S. production areas super drought]
Beef, oranges, coffee beans may not be everyone’s favorite, compared to the more widespread use of corn price increases are more worrying, because it is an important feed, but also can be used for oil and power fuel. Most of the grain futures traded in Chicago on Tuesday reported losses, only corn rose, and for the second day in a row, mainly due to strong export demand and dry weather in some parts of the United States, which may bring supply pressure on the recently planted crop, especially another major producer, Brazil’s next season corn production has been affected by hot and dry weather.
There are reports that the “permanent drought” or become the new norm in the western United States, North Dakota, Michigan corn belt is particularly trapped in extreme weather, local farmers irrigation water was completely cut off, seriously affecting the harvest, more than 85% of corn production by the impact, so that corn price increases hidden worries reappear. In fact, the western United States drought has lasted for many years, the situation is becoming more and more severe, especially the upcoming wildfire season, the entire region will be placed under extremely high risk. According to statistics, California’s five largest wildfires ever, four of them occurred in 2020, so experts warn that this year is likely to be worse.
Analyst Michael Snyder, quoted by Zerohedge, a leading financial blog, warned that the U.S. water crisis worsened this week as regulators shut down a key reservoir that provides irrigation water to farmers. The water crisis has forced many farmers to destroy part of their crops in exchange for the survival of another part of their crops. Some farmers already expect that the reduction in agricultural production will significantly push up prices, and grocery stores may suffer losses due to the failure to pass on costs.
Local analysis pointed out that among various crops, corn production was particularly hard hit. The U.S. Department of Agriculture said that as of May 11, 96 percent of corn production is in drought-stricken areas. It is reported that the first half of May this year is the U.S. corn belt for more than 30 years since the 5th cold, the 9th dry, and as of the week of May 9, the major corn-producing areas of the sowing completion rate has reached 67%, higher than last year and 5-year average, meaning that growth into a critical stage, any unexpected drought can trigger serious losses.
Because of this, the last two months corn futures prices rose sharply, a cumulative increase of $1.6 per bushel, or 22%, once breaking through nearly 10-year highs. Corn futures closed up 0.9% at $6.5825 per bushel on Tuesday. China’s unabated demand for corn, imports in April reached 1.85 million tons, up 1.08 times year-on-year; the first four months of this year reached 8.58 million tons, up 3 times year-on-year.
[Japanese steel companies increase prices of Vietnam export restrictions]
China and global steel demand is strong, driving the price of iron ore, a raw material for steel making, to record highs this month. Japan’s Tokyo Steel announced that the overall increase in steel prices from June, the rate of increase between 9.5 to 17.6%, for the third consecutive month of price increases. The outside world predicts that after Tokyo Steel price increase, is likely to drive a new wave of global steel price increases. As Tokyo Steel’s steel is mainly used in the construction industry, including South Korea POSCO Steel, Hyundai Steel and China Baosteel and other Asian competitors, are closely watching the company’s pricing.
What’s more, in order to calm the rising steel prices, Vietnam recently asked domestic steel makers to increase production and, in a rare move, restrict export sales! Import prices for hot-rolled steel coils, which are important for construction, have risen above $1,000 per ton in Vietnam, the highest in 13 years and a cumulative increase of 50% year-to-date. Vietnam is the largest steel importer in Southeast Asia, buying a total of 13.2 million tons last year, mainly from China.
In response to the oversupply, Australian miner BHP Billiton announced that its iron ore project in Western Australia will go into production in the next few days, and the Chinese government tightened control over commodity prices, causing Singapore iron ore futures to fall 5.7% to $201.8 per ton on Wednesday; Dalian iron ore futures also fell 4.4%.
Copper]
In addition to steel, another important raw material for construction, copper also appeared “export restriction order”! Chilean government in the constitutional amendment election defeat, led by the leftist political parties to amend the constitution after the work of the local copper mining industry is facing the most serious threat of regulations in more than 30 years, adding the risk of copper supply, potential support for copper prices continue to rise. London copper futures on Tuesday had surged 1.2% to $10,496.5 per tonne, Wednesday still hovering at high levels, again approaching the record high of $10,747.5 set last week.
The current membership structure of Chile’s constitutional amendment committee has exposed mining giants such as BHP Billiton (BHP) to stricter regulations and a rather unfavorable operating environment, and may have to bear the heaviest taxes. Although the process of amending the constitution may take a year, but enough to limit the industry’s large-scale investment.
The International Wrought Copper Council (IWCC) said that the copper market supply gap of about 500,000 tons this year, next year is expected to roughly restore the balance of supply and demand. Green energy transition to drive demand up, in the absence of new copper mines, the world’s largest copper traders Trafigura and Goldman Sachs are expected to copper prices in the next few years will rise to $ 15,000 per ton; Citi expected copper bull market into the second phase, the next three to four months will break through $ 12,000.
[Argentina to curb inflation to suspend meat exports for 30 days].
The global food crisis is absolutely real and is spreading to the outside world! In response to the runaway spike in local prices, Argentina, the world’s 4th largest beef exporter, announced earlier this week that it would suspend meat exports for 30 days.
Data show that the country’s inflation in March this year, after a wild rise in April on an annual basis, more soaring to about 46%, you can imagine how terrible the inflation situation, resulting in the Argentine government confirmed that the domestic beef market prices continue to soar, to take urgent measures to respond to the next 30 days to suspend exports, during the same time will implement other initiatives to improve the regulation of meat exports, to limit speculative activities and avoid foreign trade tax evasion. If the policy succeeds in depressing meat prices, the export ban may end early.
The country’s meat export industry association said in this regard that the government’s choice to close exports despite rising prices is a mistake and will continue to consult with the government. Some experts estimate that the restriction on exports could bring a loss of $240 million.
In fact, the local government’s decision to restrict exports is a reluctant one, as the rising cost of meat has plagued the local population for more than a few months, and with the economy in recession for three consecutive years, some consumers have explicitly stated that they cannot afford domestic beef. Inflation has clearly weakened economic growth and the population’s ability to consume. Data show that Argentina is one of the world’s highest consumer price index, the first four months of this year’s cumulative price increase of 17.6%.
In addition, the country has expanded its meat exports in recent years to help the meat industry, but the internal supply has decreased, leading to rising exports pushing up local prices of the dilemma. According to data from the local statistics bureau, Argentina’s beef and hides exports in 2020 amounted to $3.37 billion (about $26.2 billion), down 16.5% compared to 2019 due to the epidemic, mainly exported to China, Germany and Israel.
The country’s president, Fernandez, recently confessed his concern about rising prices, especially food prices. He complained that of the 200,000 tons of beef consumed in Argentina each month, only 8,000 tons are for domestic consumers.
It is true that Argentina is not only a major beef exporter, but also a major beef consumer, and its price increases are running ahead of inflation, with local beef prices rising by more than 65% in April this year compared to the same period last year.
[Storage demand is high only 40% shipping on time]
The epidemic brought about the demand for logistics, according to DTZ data, last year, London’s warehouse rent reached $24.9 per square foot (about 194 Hong Kong dollars), a year soared 13%, and surpassed Hong Kong and San Francisco, becoming the world’s top; Hong Kong’s warehouse rent during the period is about 10% lower than the previous year, San Francisco is roughly stable.
Warehouse demand surged, mainly due to the anti-epidemic blockade measures, consumers increased online shopping, prompting retailers to enhance distribution services, in Europe, where there is a shortage of suitable logistics stations, the situation is even worse. In the UK, leased warehouse space jumped 44%. Nick Preston, manager of the Tritax EuroBox fund, which holds warehouses in Europe, said that the market demand for storage space has never been stronger, fuelled entirely by e-commerce and supply chain optimization.
However, the strong logistics demand, shipping companies cargo ship delays are serious, exacerbating supply chain woes, but also weaken retailers and manufacturers want to ride the economic recovery when the efforts to boost profits, but instead form inflationary pressure. According to Sea-Intelligence ApS analysis, only about 40% of global cargo ships arrived at ports on time for delivery in March, an average of more than six days late. Although the late situation is better than February, it is far less than the previous two years, when more than 70 percent of cargo ships arrived at the port on time. The delays are the result of companies replenishing large quantities of goods in response to improving consumer demand, creating a shortage of freighters and pushing up freight rates.
Delays in delivery began as early as the second half of last year and worsened during the traditional slow season early this year. Sometimes, cargo ships waiting to enter the berth, but has been unloaded containers stranded in the jam-packed terminals waiting to be processed, the industry revealed that the most serious port congestion is the Port of Los Angeles and the Port of Long Beach in Southern California, exacerbating the global shortage of containers dilemma. The Danish shipping giant Maersk, which is known as the “global shipping barometer,” said that it used to take 14 days to ship cargo from Shanghai to Los Angeles, but now it takes 33 days; the sailing time has not changed, but it takes twice as long to wait for unloading. The company has invested millions of dollars to increase loading capacity, but most of it is useless because of congestion on the U.S. West Coast.
Other Eurasian ports have the same problem, including Port Klang in Malaysia, Rotterdam in the Netherlands, Piraeus in Greece, Southampton in the UK, and Kaohsiung in Taiwan.
Delivery delays have had a butterfly effect, expanding from terminals to rail stations, truck stops and distribution centers, with both large retailers, depots and small stores facing a shortage of supply and having to pay several times more than last year in order to pick up goods. According to the Baltic Shipping Index, which reflects dry bulk freight rates, the cost of shipping a 40-foot (or 12-meter) container from China to the U.S. West Coast was quoted at $5,650 this week, 34.5 percent higher than earlier this year and 2.28 times higher than a year ago.
In addition to freight, commodities shipping demand is also strong, meet the global shortage of containers and port congestion, so shipping industry freight rates continue to soar. Foreign media reports, China actively promote the automobile industry and infrastructure construction policies, driven by steel demand, and to Australia, Brazil to buy more iron ore, driven by large bulk ships capesize shipping rates hit a 10-year high, the average daily rate reached $ 44,800,000, much higher than the break-even point of $ 20,000.
Chip shipping period and lengthened Toyota also shut down]
On the shortage of supply and delayed delivery, how can we not mention the “new oil” called the chip! The current global chip shortage problem is intensifying, and then a large car factory announced a shutdown. International rating agencies estimate that the “lack of core” will cause automakers to lose production of 3.8 million vehicles this year. This situation has now aroused the concern of governments, Japan has pledged to expand support for the domestic chip manufacturing industry, is expected to be held on Friday in the U.S.-South Korea summit, the establishment of semiconductor “partnership” will become an important issue.
Car chip shortage has forced a number of international car companies to suspend production one after another. Earlier seen as unaffected by the chip shortage of the Japanese auto industry leader Toyota (Toyota) latest also bowed, announced that the lack of core, the domestic two car assembly plants will be suspended in June production. This is the first time Toyota ordered a plant shutdown due to a lack of cores, a total of 20,000 vehicles production affected, including small cars Yaris and small utility vehicles Yaris Cross and C-HR.
The market’s view on the chip shortage remains pessimistic. Fitch predicts that the lack of cores will cause a loss of 3.8 million vehicles production this year, equivalent to 5% of annual sales. Roughly, each car output value of 200,000 yuan, that is, the amount involved or up to 760 billion yuan. The bank believes that the lack of cores is likely to last longer than expected, with many automakers facing the most severe pressure in the second quarter.
Research firm Gartner also predicted in its latest report that the core shortage will continue throughout 2021 and return to normal levels in the second quarter of 2022. Bosch, the world’s largest automotive parts supplier, recently mentioned that there are still tough times ahead in the coming months, which may last until 2022.
In view of the serious lack of core, according to financial group Susquehanna research, the semiconductor industry to the wafer foundry order to the shipping date of this “lead time”
In April, it has stretched to 17 weeks, highlighting the industry is more eager to ensure the supply of chips. In view of this, Japan will strengthen the production of advanced semiconductors and batteries in this year’s national blueprint. Japanese media reported that the local government hopes to increase the injection of funds to expand the development of semiconductor manufacturing technology, and invited the United States leading manufacturers to Japan to set up factories. Japan currently holds 200 billion yen (about 14.2 billion Hong Kong dollars) to support the domestic chip manufacturing industry, and will invest more money in domestic advanced semiconductor and battery technology programs. It is reported that Japanese Prime Minister Yoshihide Suga’s cabinet plans to approve a new growth strategy in June at the earliest.
Currently, the world is looking to Taiwan to increase the supply of semiconductors, but the recent local not only to deal with drought, but also to face the deterioration of the epidemic and power instability, chip supply is likely to be affected. Data show that the global economy has been steadily recovering, demand is warming up, coupled with the rebound in raw material prices, boosting Taiwan’s first quarter manufacturing output reached 3.56 trillion New Taiwan dollars (nearly 1 trillion Hong Kong dollars), up 14.62% year-on-year, the largest increase since the second quarter of 2011. Among them, semiconductor output reached NT$483.9 billion (about HK$135.3 billion), a record high for a single quarter. But everything changed in the next quarter, natural and man-made disasters will eventually exacerbate the global chip shortage.
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