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Renewable Diesel Feedstock – Green Fuel and Affordable Food Part 2

S&P BSE SENSEX Indices Reach All-Time Highs in Q1 2021

Special Purpose Acquisition Companies (SPACs) – Part III

Capturing the Past, Present, and Future of Commodities with the S&P GSCI

Renewable Diesel Feedstock - An Alternative Clean Energy Investment Part 1

Renewable Diesel Feedstock – Green Fuel and Affordable Food Part 2

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Fiona Boal

Head of Commodities and Real Assets

S&P Dow Jones Indices

As market participants increasingly incorporate ESG metrics into all aspects of investing, it is inevitable that commodities investing would collide with ESG. The search for low-carbon fuel feedstocks from renewable sources to meet the demand for green energy is one area where the commodity-ESG conundrum is already apparent. In part 1 of our blog, we introduced renewable diesel feedstock. In this edition, we’ll continue our discussion and how it relates to ESG.

Government mandates, incentives, and standards to lower the carbon intensity of fuel combined with consumer demands for meaningful action on climate change has accelerated the demand for renewable diesel feedstocks. Refiners can produce renewable diesel from animal fats, plant oils, and used cooking oil, but in North America renewable diesel producers will increasingly be relying on soybean and canola oil to run new plants. A renewable diesel boom may have a profound impact on the agricultural sector by swelling demand for oilseeds like soybeans and canola that compete with other crops for finite planting area and affecting food prices.

Rising food prices may be a concern if the predicted demand for crops to generate renewable diesel materializes. Some industry participants have suggested that U.S. renewable diesel production could generate an extra 500 million pounds of demand for soybean oil in 2021, which would represent a 2% year-over-year increase in total consumption.

The food versus fuel dilemma is not new. The corn industry went through a similar structural shift in 2005 with the introduction of the Renewable Fuel Standard (RFS), while sugar has been used as a feedstock for ethanol for decades in countries such as Brazil. While there is little academic evidence to suggest that corn demand from ethanol has structurally increased food prices (on average corn makes up a small percentage of final food expenses), the case with edible oils may be different given that they make up a larger percentage of final food expenses, especially in developing countries.

The FAO Food Price Index (FFPI) measures the monthly change in international prices of a basket of food commodities. Exhibit 1 illustrates the volatility of the basket and its sub-sectors over time. While the FAO Vegetable Oil Price Index reached its highest level since April 2012 in February 2021, this price appreciation should be viewed in the context of higher food prices across the board driven by a combination of disrupted supply chains in the wake of COVID-19, restocking demand, weather-driven supply issues, and higher energy prices.

While renewable diesel from recycled fuels may be a more sustainable and food-price friendly alternative, the transition to lower-carbon-intensity fuels will almost certainly involve increased demand for animal and vegetable oils.

For more information on SPDJI’s commodities indices, visit https://www.spglobal.com/spdji/ and be sure to check back as we celebrate the 30th anniversary of the S&P GSCI.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

S&P BSE SENSEX Indices Reach All-Time Highs in Q1 2021

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Ved Malla

Associate Director, Client Coverage

S&P Dow Jones Indices

The S&P BSE SENSEX Index Series comprises three indices, namely the S&P BSE SENSEX, the S&P BSE SENSEX 50, and the S&P BSE SENSEX Next 50. The S&P BSE SENSEX is the oldest and most tracked index in India and comprises the 30 largest, most liquid, and financially sound companies in the S&P BSE 100. The S&P BSE SENSEX 50 is designed to measure the 50 largest and most liquid companies in the S&P BSE 100. Meanwhile, the S&P BSE SENSEX Next 50 is designed to measure the next 50 largest and most liquid companies in the S&P BSE 100 that are not members of the S&P BSE SENSEX 50.

In this blog, we will compare the returns of the S&P BSE SENSEX, the S&P BSE SENSEX 50, and the S&P BSE SENSEX Next 50 for the first quarter of 2021.

In Exhibit 1, we see that for the period ending March 31, 2021, the absolute returns of the S&P BSE SENSEX, S&P BSE SENSEX 50, and S&P BSE SENSEX Next 50 were 3.85%, 5.21%, and 8.35%, respectively.

In Exhibit 2, we see the total return index levels of the S&P BSE SENSEX, the S&P BSE SENSEX 50, and the S&P BSE SENSEX Next 50. The S&P BSE SENSEX Next 50 consistently outperformed the S&P BSE SENSEX and S&P BSE SENSEX 50 during the first quarter of 2021, despite the high market volatility during this period.

Furthermore, Exhibit 3 shows us that all three indices had their all-time highs in the first quarter of 2021.

To summarize, we can say that the S&P BSE SENSEX Index Series showed promising returns in Q1 2021; despite the increased volatility, all three indices reached all-time highs during this period.

The posts on this blog are opinions, not advice. Please read our Disclaimers.

Special Purpose Acquisition Companies (SPACs) – Part III

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Jason Ye

Associate Director, Strategy Indices

S&P Dow Jones Indices

In our previous blog (part II), we introduced SPACs’ lifecycles, as well as the potential benefits and risks of investing in SPACs. In this blog, we will focus on SPACs’ liquidity. In general SPACs’ liquidity is poor when seeking the target, surges on the deal announcement date, and remains low relative to the S&P SmallCap 600® after de-SPAC.

As of March 26, 2021, the median market capitalization of all listed SPACs was USD 284 million, much lower than the median market capitalization of USD 1.5 billion of S&P SmallCap 600 constituents. Since most SPACs are small- or micro-cap companies, we compared their liquidity against the S&P SmallCap 600. Based on the lifecycle of a SPAC, we analyzed its liquidity in three stages: post-IPO, deal announcement, and post-deal completion (see Exhibit 1).

We analyzed the 767 SPAC IPOs listed on the NYSE, NASDAQ, and NYSE American since 2008. As discussed in part I of our blog series, the majority of SPAC IPOs occurred in 2020 and 2021. We tracked the history of each SPAC through its lifecycle. Of the 767 SPAC IPOs, 27 were liquidated, while 23 SPACs finished the merger but were further acquired by another company, privatized, or became bankrupt. We excluded these 50 SPACs from our analysis in order to focus on the de-SPAC companies before any further corporate actions. Only common stock is included in our analysis.

Exhibit 2 shows that the average number of months from IPO to deal announcement was 10.8 months, and the average number of months between deal announcement and deal completion was 4.6 months. 57% of SPACs announced a target within 12 months, and 98% of SPACs completed the merger within 12 months.  For our analysis we use 1, 3, and 6 months for post-IPO, and 3, 6, and 12 months for post-completion.

Liquidity

Exhibit 3 shows that the median of the S&P SmallCap 600 constituents’ past three-month median daily value traded (MDVT) was around USD 7 million at each quarter-end during the past five years, and the mean was around USD 11 million.

Exhibit 4 summarizes the SPACs’ MDVT and how that compares to the USD 7 million and USD 11 million benchmark liquidity post-IPO and post-completion, respectively. Exhibit 5 shows how the daily value traded changed 30 days before and 30 days after deal announcement, and Exhibit 6 highlights the distribution of value traded on the announcement day. The data shows the following:

  1. Most of the SPACs’ liquidity was lower than the median liquidity of the S&P SmallCap 600 constituents (see Exhibit 4).
  2. During their lifecycle, SPACs’ liquidity was the worst when searching for a target (see Exhibit 4). On the day of deal announcement, SPACs’ liquidity tended to improve significantly (see Exhibit 5 and Exhibit 6). Once a SPAC completed the deal, it traded with lower liquidity than the median of the S&P SmallCap 600 constituents (see Exhibit 4).
  3. At each stage, SPACs’ liquidity decayed rapidly after the corporate action (see Exhibit 4).
  4. The median liquidity was much lower than the mean liquidity, which shows that the distribution is heavily skewed in each stage (see Exhibit 4 and Appendix).

In our next blog in this series, we will follow the same framework to analyze SPACs’ performance.

Appendix

The posts on this blog are opinions, not advice. Please read our Disclaimers.

Capturing the Past, Present, and Future of Commodities with the S&P GSCI

After three decades of helping investors make more informed decisions and providing index-based access to diversification, liquidity, and inflation protection –  what’s next for this index icon?

The posts on this blog are opinions, not advice. Please read our Disclaimers.

Renewable Diesel Feedstock - An Alternative Clean Energy Investment Part 1

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Fiona Boal

Head of Commodities and Real Assets

S&P Dow Jones Indices

Renewable diesel1 is one of the newer clean energy fuels on the market. It has become popular because it reduces emissions and has up to 85% less sulfur than ultra-low sulfur diesel. As clean air regulations and sustainability goals become more common, renewable diesel could continue growing in popularity. Renewable diesel can power conventional auto engines without being blended with diesel derived from crude oil, making it attractive for refiners aiming to produce low-pollution options.

According to the U.S. Department of Energy, the U.S. Energy Information Administration does not report renewable diesel production, but data from the U.S. Environmental Protection Agency indicates that the U.S. consumed over 900 million gallons in 2019. Nearly all domestically produced and imported renewable diesel is used in California due to economic benefits under the Low Carbon Fuel Standard. S&P Global Platts forecasts that the global renewable diesel supply will exceed 3 billion gallons by 2023 and 5 billion gallons by 2025.

Refiners can produce renewable diesel from animal fats and plant oils, in addition to used cooking oil. Several plant oils are widely traded via commodities derivatives, and for those market participants seeking exposure to green fuels, these commodities may offer an alternative avenue of investment.

The proportion of oil produced by crushing these so-called feedstocks varies, but apart from soybeans, they are all crushed for their oil, i.e., oil is the most valuable product from the crushing process and is the primary driver of demand (see Exhibit 1).

The performance of renewable diesel feedstocks was strong over the past 12-month period (see Exhibit 2), reflecting robust restocking demand from existing refiners, as well as expectations that production capacity would expand significantly over the coming years. The Biden Administration’s promise of a clean energy revolution may prove instrumental in cementing this new demand driver for plant and animal oils. However, more traditional food demand has also been strong for edible oil and meal. The U.S. Agriculture Department has forecasted record-high soybean demand from domestic processors and exporters in 2021, largely because of expanding global demand for livestock and poultry feed.

Over the long term, the adoption of electric passenger vehicles may limit the increased use of edible oil for renewable diesel, but it will still be required for heavy transport, such as trucks and trains.

For more information on S&P DJI’s renewable diesel feedstock indices, please visit https://www.spglobal.com/spdji/ and be sure to check back as we celebrate the 30th anniversary of the S&P GSCI.

1 In Europe, renewable diesel is known as hydrotreated vegetable oil

The posts on this blog are opinions, not advice. Please read our Disclaimers.