Palladium jumps on Russian sanctions proposal
In response to Russia’s war against Ukraine and the sanctions from the West, palladium, a metal under pressure for months, rose strongly after the U.S. asked G7 allies to consider sanctions on Russian palladium and titanium. Russia, along with South Africa, accounts for 70-80% of the world’s palladium output, making any disruption to Russian supply a potential concern. However, this is somewhat mitigated by the current weakness across the global internal combustion engine (ICE) vehicle industry amid an economic slowdown and the industry’s transition to electric vehicles. While a sustained positive price impact is questionable, given that significant action may further pressure the auto sector, short-term support has come from speculators reducing a long-held short position following the technical breakout through resistance-now-support at USD 1,125 per tonne.
Grain exports surge, easing supply pressure from bumper U.S. harvest
A surge in U.S. export sales helped support a weekly bounce in corn and soybeans, two major crops recently pressured by the prospect of a bumper U.S. harvest, and uncertainty over the outcome of the 5 November U.S. election. Corn led the way after the USDA reported 4.2 million tonnes of American corn sold last week, the most in a single week since May 2021. This was driven by demand from buyers taking advantage of low prices to re-stock ahead of the election, which may lead to trade disruptions or policy changes. Overall, the Bloomberg Grains Subindex trades down 16.5% on the year and is by far the worst-performing sector amid an overhang of supply of key crops, which, despite pockets of weather-related trouble, has seen back-to-back strong production years.
Cocoa price decline comes too late to affect Christmas
Cocoa prices have fallen to a March low at USD 6,750, as the main season harvest gets underway in Ivory Coast, thereby improving a tight supply situation which earlier this year saw prices temporarily spike above USD 12,000 per tonne. So far, arrivals of beans to ports have exceeded last year’s, highlighting an improved supply outlook following a period of beneficial rain.
In addition, a one-year delay in implementing the European Union’s Deforestation Regulation (EUDR) may ease supply concerns for EU importers, who were facing increased expenses from verifying deforestation-free supply, while the delay reduces the short-term risk of cutting off supply from non-compliant regions.
However, the price drop has probably arrived too late to lower prices for the high-demand season ahead of Christmas and New Year. While Easter chocolates may be less expensive next year, the chocolate we consume this Christmas will likely be pricier than last year. Despite the prospect of an improved harvest, the shortfall from the previous two harvests will take time to rectify, if at all possible. This is evident in the futures market, which is pricing cocoa next December at around USD 5,200 per tonne—some 23% below the current price, but still more than double the long-term average.