SMP
EU prices find support from US and APAC market situations
Europe
Sell side feels confident, but is it realistic?
The positive sentiment on the early January GDT session was counter intuitive to most EU market participants. It boosted sell side confidence at a time when milk supply is at record levels. This sentiment is not adopted by the EU buyside which continues to point at the fundamental oversupply situation. Looking back at the first week of December the bottom price level of just above EUR 2000 ex works did trigger quite some buyside interest. This fueled sell side confidence that there is sufficient latent demand even now that the prices have moved up to EUR 2075-2125 ex works. EU powder is well positioned for exports and with ONIL expected any week now the sell side will not easily be swayed from their comfortable position, even though most other buyers are not willing to bite at these prices.
Americas
US powder availability is actually limited
During December the US NFDM market remained stable but in the first week of January things got fired up. First of all the positive sentiment on GDT gave the market a push but then also buyers began to confirm more deals - particularly from Mexico because of short forward coverage. Supply of NFDM is a little tight as despite strong milk production the volumes that are processed into powder are down when compared to last year, as alternative products such as UF milk and Class II products provide better margins. This pushed spot prices up to around USD 1.20-1.21/lb (2660/t) ex works, but it also lifted the forward curve by some USD 4-6 cts. Overall, this leaves the US NFDM market with a mixed outlook: availability is not massive, but we are heading towards the flush months. At the current prices the US is not competitive on exports and therefore there are still some uncertainties around the corner.
Asia-Pacific
Perceived supply tightness creates upward momentum
The APAC market for SMP has been taken by surprise by the upward momentum on the early January GDT session. Market participants are now trying to come to grips with the severity of the apparent supply tightness of Oceania powder. The facts that US powder is not abundant either and that EU suppliers are comfortable enough to lean back as well creates a sense of nervousness. Fundamentally, though, there is no shortage of supply in a global perspective. The price range in the APAC market for SMP is now USD 2550-2650 FOB and further upward potential cannot be ruled out, but there are also sufficient arguments to the contrary.
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