(Bloomberg) — Global shipping rates are rising as tensions rise in the Red Sea, after the United States and the United Kingdom launched air strikes against Iran-backed Houthi militants in response to their attacks on commercial ships. Alcoa Corp. reports earnings on Wednesday, marking the unofficial start of quarterly reporting season for the commodity world, while cocoa’s upward momentum continues.
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Here are five notable charts to consider in global commodity markets as the week begins.
shipping
Shipping companies are increasingly avoiding the Red Sea amid the escalating situation in the key global trade corridor. Before Friday’s coalition strikes in Yemen, shipping rates were already rising amid escalating attacks. The Drewry Composite Index – a weighted average of eight major routes – has risen 122% since November 30 as ships have been forced to travel in alternate waters and travel thousands of extra miles, resulting in fewer ships carrying cargo. The Houthis have vowed to retaliate, threatening to further destabilize global supply chains and raise shipping costs further. A US fighter jet shot down a cruise missile fired from Houthi territory in Yemen towards a naval destroyer in the southern Red Sea on Sunday, according to US Central Command.
agriculture
The significant rise in cocoa prices does not stop with the beginning of the new year. The most active futures contracts in London closed 2023 with the biggest annual advance in 15 years, while contracts in New York rose 61%. Both have risen in recent days on growing concerns about declining production. Traders will focus on key reports due on Thursday for the final three months of last year in Asia, Europe and the United States, which are seen as an indicator of demand. Weak processing data can lead to lower prices, as it may indicate a decline in consumption of discretionary items such as chocolate. Cocoa futures settled in London on Monday, snapping a four-day advance last week.
natural gas
LNG shipments have risen significantly since the opening of the first export facility in the lower 48 states in 2016 as production has soared, with the United States becoming the world’s largest exporter last year for the first time. But the Biden administration — amid mounting pressure from environmental groups and lawmakers to make good on its pledge to transition away from fossil fuels — is evaluating the climate criteria it uses to approve new export projects that could cripple the booming industry. There is “an increased risk that the review could result in a formal or informal delay or pause in approvals,” Benjamin Salisbury, an analyst at Height Securities LLC, wrote in a note.
Profits
Alcoa — the largest U.S. aluminum producer — is scheduled to report fourth-quarter results on Wednesday after the close of trading. Shares fell 25% last year as the company suffered operational and allowing setbacks in Australia for bauxite, and as global aluminum prices barely made gains amid oversupply. Alcoa said last week it planned to halt production at one of its three refineries in Western Australia, as it began weighing cost-cutting measures. Investors will seek guidance from CEO William Oplinger regarding any further operational adjustments, as well as potential impacts on market fundamentals from the ongoing buildup of Russian supplies on the LME.
Battery metals
Lower prices for raw materials such as lithium, cobalt and nickel have led to lower costs for batteries used to power electric cars. Last year, average prices fell to $139 per kilowatt-hour, and are expected to fall another $6 per kilowatt-hour in 2024, according to BloombergNEF. Despite the declines – a boon for consumers – there are growing concerns in the market. Excess capacity leads to lower plant utilization rates, which in turn impacts battery manufacturers’ profit margins, according to BNEF forecasts. Political, business and cultural leaders will meet starting Monday at the World Economic Forum in Davos, Switzerland, to discuss critical minerals, electric vehicles and the energy transition, among many other things, on the agenda.
–With assistance from Mumbi Jitu, Megan Durissen, and Ruth Liao.
(Updates regarding the Houthi attack in the third paragraph, and cocoa prices in the fourth paragraph).
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