The closing average prices for the current driver contract on the New York exchange had a month of February marked by important advances that could still be seen in a market that observed a fundamental scenario much less supplied on the Asian side. However, in early March this scenario already showed important changes due to the climate of risk aversion with the effects of Covid-19 and the oil tumble.
However, in view of the important advances in February, with gains of 14% YoY and almost 4% in the margin, the market still observed a scenario of strong international deficit (ranging from 0.5 to 9 million tons) in the balance between supply and demand at the end of the 2019/20 international season.
This reading has been reinforced by production losses predicted for India and Thailand. The losses may hit up to 26 million tons in India and 9 million tons in Thailand. It is interesting to note that both these countries had production volumes in their previous seasons of 34.3 and 14.5 million tons respectively, which really causes some shock when buying with the expected final production levels. However, these estimates are made by local class entities, which leaves these data with a strong ‘lack’ of confirmation. The expectation of SAFRAS & Mercado, released since December last year, is for a production of around 30 million tons in India and of 10.5 million tons in Thailand. This also helps explain why the slope of the future price curve in New York is negative in the long term.
In this context, in February, the average closing price of the March/20 contract on the New York exchange was 14.70 cents. In comparison with the same month of the previous year, there was an increase of 14.19% against the average of 12.88 cents. In the margin, there was an appreciation of 3.79% over the average of 14.17 cents in January. Expanding the analysis scope, we see that the average price of February this year was 1.59% below the five-year average, which is currently around 14.94 cents. In the previous month, current prices had been 6.42% lower than the five-year average for the period, which until then fluctuated by 15.14 cents.
As a result, the average price for the last five years between January and December showed a devaluation of 1.31%, while the price level of the March/2020 contract ended up advancing 3.79% in the margin. Therefore, the reading is that there was a movement of overlapping between the two levels, with the average current price line advancing in the margin and the historical price level backing off, resulting in a strong tone of proximity seen in February.
For February, SAFRAS & Mercado’s expectation was for prices around 14.50 cents, which was 1.38% below the effective average price of the period at 14.70 cents. For February, SAFRAS & Mercado expects prices to be around 13.50 cents, which must mean an annual increase of 8.23%, a decrease of 8.18% in the margin, and another decrease of 5.77% from the five-year average for the same period.