News, events and analyses related to global trade and snippets of changing trade matrix during the month of March 2016.
Possible supply freeze
Crude Oil
Cure to the slide?
Just in January, oil markets around the world were preparing themselves for the worst. Venezuelan government’s revenues had plunged by 70%, and President Nicolás Maduro had declared economic emergency in the country. The catastrophic situation had put pressure on Saudi Arabia to return to its role as a so-called “swing producer”, raising and cutting production to control prices. However, Saudi officials felt that given the booming American oil output, any production cuts would be ineffective, and decided to open up the kingdom’s own taps to near record levels and fight for market share. Come mid-February, and there is a change in mood – oil kings Russia and Saudi Arabia, along with Qatar and Venezuela have finally agreed to freeze their oil outputs at January 2016 levels, all in an effort to control tumbling oil prices. This is the first deal the non-OPEC and OPEC producers have had in over a decade. The last time a deal was made in 2001, Moscow went back on its word to cut production. So, it remains to be seen whether or not it will stick to its word this time.
According to data from the Joint Organisations Data Initiative (JODI), 63.6 billion barrels (bbl) of oil was produced in November 2015. Out of this, OPEC members Saudi Arabia, Venezuela and Iran accounted for 16% (10.2 billion bbl), 4.1% (2.6 billion bbl) and 1.1% (0.68 billion bbl) respectively. Russia was the second largest producer the same month, accounting for 15.9% (10.1 billion bbl) of total production. Most analysts do not believe that this cut will have a huge impact on the glut, as US, Iraq and Iran are not part of this agreement, and also because there was an oversupply in January as well – the crude oil production by OPEC nations rose by 2,80,000 bbl a day to 32.63 million bbl per day. So, even if the countries freeze production at January levels, there will still be an oversupply of close to 300 million bbl a year. Iran has however refused to adopt control measures and further risk losing its oil market share.
Remains to be seen who else joins the saintly brigade, and whether promises are honoured this time around.
Silk Road
It’s back in business
China’s highly ambitious New Silk Road project is garnering a lot of attention these days as the first train connecting China and Iran arrived in Tehran on February 15, 2016. The train, carrying 32 containers loaded with Chinese products, took two weeks to cover a distance of 10,400 km between China’s trading hub of Yiwu and Tehran. Interestingly, a typical sea voyage between Shanghai and the Iranian port of Bandar Abbas would have taken about a month and a half to deliver a similar consignment. For the uninitiated, China was one of the few countries in the world that did not have sanctions against Iran. And with this train route, bilateral relations between the two nations have moved to the next level. Since 2009, China has been Iran’s biggest trading partner. In fact, Ayatollah Ali Khamenei, Iran’s Supreme Leader has also called for closer economic and security ties with China. Furthering this comradery, Chinese President Xi Jinping and Iranian President Hassan Rouhani recently signed 17 agreements which included oil drilling and nuclear energy with an aim to increase bilateral trade to $600 billion. Also called the “One Belt, One Road” project, China intends to construct roads and railways across Asia, Europe and Africa to be better connected to the rest of the world.
Federal Reserve
Slow but steady
Acknowledging that the American economy has slowed down, despite an improvement in the job market, the country’s central bank left its benchmark interest rate unchanged in a range of 0.25% to 0.5%. While Fed maintains that the rates may gradually be increased, that does not seem likely an occurence in the near weeks. The fall in oil prices, coupled with China’s economic slowdown, and currency devaluations across the world are major concerns in the financial market, and have affected the Fed’s decision. In its statement, the Fed Reserve Committee made note of its expectations that “with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labour market indicators will continue to strengthen”, and assured that it is “closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation, and for the balance of risks to the outlook.” Even Boston Fed President Eric Rosengren said during a speech in Maine that a strong dollar and falling oil prices will make it difficult for the Fed to achieve its target to bring the rate to 2%, adding, “In my own view, if inflation is slower to return to target, monetary policy normalisation should be unhurried”.
IMPORT BAN
Spilling the beans
Russia has banned the import of corn and soybeans from USA. In a statement on its website, Russian watchdog Rosselkhoznadzor mentioned, “Phytosanitary control performed in 2015 revealed that in 64 cases, soybeans from the USA were infected with 7 types of quarantine for Russia objects, and in January 2016 in four cases – four types, including objects exotic for Russia,” indicating that the ban is a result of contamination of the products, and the risk of Russia receiving GMO (genetically modified organisms) products. The Rosselkhoznadzor further said it is “seriously concerned about the situation as systematic export of infested products from USA threatens phytosanitary and food safety not only in Russia and but in European Union as well.” Russia and the West have been at loggerheads over Russia’s backing of separatists in eastern Ukraine. This has resulted in sanctions on several products from both sides.
Lifting of import ban
Holy cow!
Danish beef exporters can breathe a sigh of relief, as during the first week of February 2016, Japan lifted a decade-and-a-half long ban on import of Danish beef. The move comes after Japan lifted its ban on beef imports from Poland, France, Netherlands and Ireland. Back in 2001, Japan had imposed a ban on import of beef from European Union citing a risk of Bovine Spongiform Encephalopathy (BSE), a disease that can affect the health of any human who eats infected beef. EU thought Japan was going overboard as the ban went beyond the recommendations by the World Organisation for Animal Health (OIE). But starting with the abovementioned four member states in 2013, Japan resumed imports of beef from EU, and has now opened up its market to Denmark as well. Political heads across other nations across EU are hopeful that Japan will continue to approve and thus import beef from the remaining member states as well. Denmark will now have to designate exporting institutions for exports to resume effectively.
World Bank and IMF
Yet another bailout in the making
Tumbling oil prices have hit everyone hard… so much so that every part of the world – including Central Asian countries – is feeling the heat! Recently, representatives from International Monetary Fund (IMF) and World Bank went to oil-exporting Azerbaijan to discuss its request for a loan of $3 billion in financial aid from the former and $1 billion from the latter. While Azerbaijani Finance Minister Samir Sharifov insists that the Country of Fires doesn’t need an immediate bailout, he leaves open the possibility that it may need the same in a couple of months. In late January, the country, where East meets West, became one of the first few nations to implement capital control, with a 20% tax on foreign currency sent abroad for investments. In a statement, the IMF left open the possibility of the team to discuss areas for technical assistance, and assess possible financing needs. Additionally, the Azerbaijani quota in the IMF has gone up to 391.7 million SDR ($546.14 million) from 160.9 million SDR ($224.34 million), out of which 44% will be in the form of national currency.
Import ban
Not just a fly in the ointment
USA’s latest move has left a sour taste in Morocco’s mouth. In early February, the United States Animal and Plant Health Inspection Services announced that tangerines, sweet oranges, clementines, and mandarins from Morocco were barred from entering the country. The announcement came after a live Mediterranean fruit fly larva was found in one of the shipments of clementines at the Philadelphia port of entry. It’s worth noting that between 2012 and 2015, US imports of Moroccan citrus fruits had grown by more than 400% to $110.9 million. The ban – that’s sour.
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