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Commodities Briefing - Category | Financial more

Falling Commodity Prices Leave India With Huge Subsidy Bill

Posted on 03 May 2016 by VRS  |  Email |Print

The nose-dive in global commodity prices has had an unexpected repercussion in India: a giant new subsidy bill as New Delhi spends billions to mop up wheat, rice, sugar and cotton at government-fixed prices.
India guarantees minimum prices for certain crucial crops to protect its large population of poor farmers. When prices plunge, it has to buy more. It usually sells the commodities it collects at a loss—some to India’s needy and some on global markets. Some of the stockpile just rots in government warehouses………………………………………..Full Article: Source

Chinese Commodity Speculators Drop Out After $261 Billion Binge

Posted on 29 April 2016 by VRS  |  Email |Print

The speculators that traded $261 billion in Chinese commodities in a single day last week are retreating as regulators prepare to step up control of the market.
The value of futures traded across China’s three biggest commodity exchanges has shrunk 42 percent since investors spent 1.7 trillion yuan last Thursday on everything from steel bars to eggs. The amount that changed hands was on a par with the entire U.S. equities market on the same day………………………………………..Full Article: Source

Commodity hedge funds outshine other hedge funds

Posted on 29 April 2016 by VRS  |  Email |Print

The commodities market has a very positive sentiment now and the commodity hedge funds are doing better than other hedge funds. Commodities hedge funds have given negative returns for the past three years.
But according to Peter Laurelli, vice-president, research, eVestment, the current year has started on a positve note for commodities as investors start reallocating for better gains. The commodities market has a very positive sentiment now and the commodity hedge funds are doing better than other hedge funds………………………………………..Full Article: Source

Citigroup’s commodity trading gross profit rises 50%

Posted on 25 April 2016 by VRS  |  Email |Print

Citigroup has reaped the benefits of investing in its commodities business as rivals pull back, cementing its position as one of the leading investment banks that generate hundreds of millions of dollars from trading raw materials.
Citi generated $850m in gross profit from commodities trading last year, up by about 50 per cent compared to 2014, according to three people familiar with the situation, on the back of volatile markets and the oil price rout………………………………………..Full Article: Source

Gold is the spectre haunting our monetary system

Posted on 18 April 2016 by VRS  |  Email |Print

For a century, elites have worked to eliminate monetary gold, both physically and ideologically. This began in 1914, with the UK’s entry into the First World War. The Bank of England wanted to suspend convertibility of bank notes into gold. Keynes counselled wisely that the bank should not do so. Gold was finite, but credit elastic.
By staying on gold, the UK could maintain its credit, and finance the war effort. This transpired. The House of Morgan organised massive credits for the UK, and none for Germany. This finance was crucial, and sustained the UK until the US abandoned neutrality and tipped the military balance against Germany………………………………………..Full Article: Source

Negative interest rates spark 2016 gold rush - but can German buyers push prices even higher?

Posted on 30 March 2016 by VRS  |  Email |Print

Almost a quarter of world GDP lies in economies whose central banks now have negative interest rates of some form. This experimental policy – used variously to weaken strengthening currencies and attempt to stimulate growth – has its fans, but investors have not been among them.
“There’s a sense that central banks are running out of ways that they can stimulate the economy,” says Chris Beauchamp of IG. As Deloitte economist Ian Stewart, among others, has pointed out, while in theory negative rates should encourage banks to lend and consumers to spend, in practice, they could just prompt individuals and companies to hold physical cash instead………………………………………..Full Article: Source

The commodities slump won’t undermine Australia’s banks

Posted on 29 March 2016 by VRS  |  Email |Print

Australians hate a tall poppy, which means the country’s richly valued banks are liable to get cut down at the first hint of bad news. So when Australia & New Zealand Banking Group admitted last week that it would have to take higher bad-debt charges due to the slump in commodity prices the shares fell as much as 6 per cent, the biggest drop in more than seven months.
Overvalued banks, rising defaults, troubled mining companies: What’s not to dislike about that picture? Sadly for the dwindling band still shorting the country’s big four banks, there’s little evidence such problems will pose more than a temporary speed-bump to their earnings. ……………………………………….Full Article: Source

Bondholders suffer $150bn oil price hit

Posted on 22 March 2016 by VRS  |  Email |Print

Investors have suffered losses of at least $150bn in the value of oil and gas company bonds, as the slump in crude prices since the summer of 2014 has fuelled fears of a wave of defaults in the US and emerging markets.
The 300 largest global oil and gas companies have also seen $2.3tn sliced from their stock market value over the same period, a 39 per cent slide since oil began its decline, an analysis by the Financial Times has found………………………………………..Full Article: Source

Shale Patch Pain Sees Speculators Boost Bets on Oil Price Rise

Posted on 14 March 2016 by VRS  |  Email |Print

Hedge funds are the most bullish on oil in almost a year as the U.S. shale boom unravels and demand for gasoline strengthens. Signs that producers won’t be able to sustain a supply glut are intensifying, with the International Energy Agency calling a bottom for the price rout.
U.S. output is near a 15-month low as companies from Anadarko Petroleum Corp. to Chesapeake Energy Corp. cut jobs and park rigs to conserve cash, while several missed debt payments. Meantime, U.S. gasoline consumption rose to the highest on record for this time of the year………………………………………..Full Article: Source

Miners seek fresh financing options, backed by resurgent gold

Posted on 09 March 2016 by VRS  |  Email |Print

This year’s double-digit gold rally is opening opportunities for smaller miners to sell future output or tap markets for finance, aimed at paying back debt and strengthening balance sheets. Miners have been hit hard by plummeting commodities prices, forcing them to cut jobs, capital expenditure and dividends.
However, bullion has risen nearly 20 percent so far in 2016 to a 13-month high around $1,280 an ounce on concern about financial and economic turmoil and a weaker dollar as markets adjust to the prospect of deferred U.S. interest rate rises………………………………………..Full Article: Source

While market debates commodities bottom, inflation warnings rise

Posted on 08 March 2016 by VRS  |  Email |Print

Some traders have been ringing the bell for the bottom of the commodities collapse, just as markets are sniffing out the earliest signs of inflation. That’s important since a turn in commodities prices could mean a pickup in inflation, which is already starting to materialize, and that could get the Fed moving faster on interest rate hikes.
Fed funds futures on Monday began to price in a full rate increase for December, for the first time since late January. Futures had been pointing to the first rate hike in March 2017. “Services inflation has remained steady for a while. All you needed was commodities prices to stop going down and that changed the inflation calculation here,” said Peter Boockvar, chief market analyst at The Lindsey Group………………………………………..Full Article: Source

India: A welcome Budget for commodity market

Posted on 01 March 2016 by VRS  |  Email |Print

There were many announcements in the Budget that were favourable for the commodity market. The Finance Minister also announced a common e-platform for farmers for 585 wholesale markets. For commodity traders, the icing on the cake came in the form of the proposal to announce new commodity derivatives by SEBI.
The Indian commodity market is currently in shambles. The National Spot Exchange fiasco, the slow developments after the SEBI-FMC merger and the continued distress of farmers due to poor supply chain infrastructure have all added to the problems. The clean-up in the commodity market is finally happening. With the regulator SEBI being asked to introduce new instruments soon, the market will see its liquidity improve………………………………………..Full Article: Source

Goldman Sachs Says 40% of Its Oil, Gas Lending to Junk Firms

Posted on 23 February 2016 by VRS  |  Email |Print

Goldman Sachs Group Inc. said about 40 percent of its oil and gas loans and lending commitments are to junk-rated firms. The figure, which counts both loans made and future promises to lend, accounted for $4.2 billion of a total $10.6 billion as of the end of December, the New York-based bank said Monday in its annual regulatory filing.
Goldman Sachs has $1.5 billion in loans to energy companies rated below investment grade and $2.7 billion in unfunded commitments. The total exposure jumps $1.9 billion counting derivatives and other receivables, which were “primarily” to investment-grade firms, Goldman Sachs said. ……………………………………….Full Article: Source

How the commodities crash is wiping out corporate promises on dividends

Posted on 22 February 2016 by VRS  |  Email |Print

The whole idea of “progressive” dividends – the corporate promise to keep dividends intact or, better yet, boost them every year – was always a risky idea, but one that still seduced income-craving investors. They piled into dividend-heavy shares and rode the wave. Now they’re paying the price. Dividends doled out by the big resources companies are getting slaughtered as prices for everything from oil to copper sink.
More dividends are to be sent to the knacker’s yard. The dividend yield of BHP Billiton, the world’s biggest mining company, is a lofty 11 per cent, the result of a 50 per cent fall in the share price in the last year. How much longer can BHP’s payout last? Not long, is the market’s guess, as the “stronger for longer” theory that had convinced investors commodity prices would stay high forever proves a myth………………………………………..Full Article: Source

Biggest Banks’ Commodity Revenue Slid to Lowest in Over a Decade

Posted on 22 February 2016 by VRS  |  Email |Print

Revenue from commodities at the largest investment banks sank to the weakest in more than a decade last year, laid low by a rout in prices for everything from metals to gas. Income at Goldman Sachs Group Inc., Morgan Stanley and the 10 other top banks slid by a combined 18 percent to $4.6 billion, according to analytics firm Coalition Ltd.
That was the worst performance since the London-based company began tracking the data 11 years ago, and a slump of about two-thirds from the banks’ moneymaking peak in 2008. Revenues are unlikely to return to the heights of $14.1 billion seen at the top of the market, according to George Kuznetsov, head of research at Coalition………………………………………..Full Article: Source

Copper Skeptics Boost Bearish Wagers, Defying Rally for Prices

Posted on 22 February 2016 by VRS  |  Email |Print

While copper prices have rallied in four of the past five weeks on the prospect of improved industrial demand in China, hedge funds are skeptical that recovery will last. The funds and other large speculators have bet on declines for the metal since October. Last week, the net-short position in copper holdings grew for the first time since mid-January, even as the metal advanced.
Doubts over a sustained rebound echo the outlook of Goldman Sachs Group Inc., where analysts predict that the metal will drop at least 10 percent by the end of the year………………………………………..Full Article: Source

India’s GDP to grow at 7.5% in 2016, 2017: Moody’s

Posted on 19 February 2016 by VRS  |  Email |Print

Indian economy will grow at 7.5% in 2016 and 2017 as it is relatively less exposed to external headwinds, like China slowdown, and will benefit from lower commodity prices, Moody’s Investors Service said.
The firm, however, warned that the generally robust economic environment is constrained by “banks’ balance sheet repair and elevated corporate debt” and corporate pricing power being limited by the impact on food price inflation and households budgets of two consecutive droughts………………………………………..Full Article: Source

Commodity Price Crunch Puts Pressure on Credit Lines

Posted on 19 February 2016 by VRS  |  Email |Print

Energy, mining and related manufacturing companies are renegotiating revolving credit lines to avoid defaulting on their loans. That’s leading to tighter terms and shrinking borrowing capacity. Bankers and analysts expect to see the trend accelerate amid tumbling prices for oil and gas and other commodities.
Joy Global Inc., a Milwaukee, Wisc.-based mining equipment maker, late last year approached its syndicate of banks, led by Bank of America Merrill Lynch, to avoid breaking terms on its $1 billion revolving credit line. Company executives were worried they could breach a debt covenant that restricted Joy’s ratio of net debt to ebitda to under three times………………………………………..Full Article: Source

As Commodities Plummet, Banks Edge Towards Undercapitalization

Posted on 19 February 2016 by VRS  |  Email |Print

Analysts from Bernstein Research state that European investment banks and US brokers are in general still undercapitalized, despite 6 years of spending aimed at remedying the situation. According to the analysts, Deutsche Bank’s tangible equity is just 2.7% of its tangible assets.
This is when we exclude the deferred tax assets. The only bank that has it worse is Credit Agricole with 2.3%. A little better is Credit Suisse with 3.0%. Standard Chartered looks good for now (7.3%) but it’s being heavily pushed by the markets that bank with commodity exposure………………………………………..Full Article: Source

Gold Posts Slight Gains as Bargain Hunters “Buy The Dip”

Posted on 18 February 2016 by VRS  |  Email |Print

Gold prices ended the U.S. day session with slight gains Wednesday, as traders “bought the dip” in prices that occurred earlier this week. However, increased trader and investor risk appetite in the marketplace so far this week is a bearish element working against the safe-haven gold market.
April Comex gold was last up $1.20 at $1,209.40 an ounce. March Comex silver was last up $0.006 at $15.34 an ounce. Most global stock markets are seeing gains this week, on ideas crude oil prices may have bottomed out and can work sideways to higher in the coming weeks. Equity markets have been closely tracking daily movements in the crude oil market recently………………………………………..Full Article: Source

Private-Plane Purchases Drop 3.1% as Commodities Market Tumbles

Posted on 11 February 2016 by VRS  |  Email |Print

Spending on business aircraft fell 3.1 percent last year as a commodities downturn crimped demand for long-range jets in emerging markets. Companies and wealthy individuals spent $18.7 billion on private jets, according to the General Aviation Manufacturers Association. The report is adjusted because Bombardier Inc. hasn’t reported fourth-quarter results yet.
Sales of large-cabin planes, such as Bombardier’s Global 5000, were pinched by Brazil’s recession, sanctions against Russia and a stronger U.S. dollar that made aircraft more expensive for foreigners, said Peter Arment, an analyst at Sterne Agee CRT. Some non-U.S. manufacturers price aircraft in dollars………………………………………..Full Article: Source

U.S. Farm Income Will Drop for Third Year in Commodity Slump

Posted on 10 February 2016 by VRS  |  Email |Print

The U.S. Department of Agriculture forecast that farmers will face a drop in profit for the third straight year as persistent surpluses depress crop and livestock prices. Farm net income will be $54.8 billion in 2016, the USDA said Tuesday in a report on its website, 2.8 percent less than the $56.4 billion estimated for 2015.
The hard times follow an era of record profit that peaked at $123.3 billion in 2013, when rising global demand combined with a domestic drought that crimped supplies of corn and cattle, while a virus devastated hog herds. Direct government farm-program payments are forecast to rise 31 percent to $13.9 billion in 2016 with the 2014 Farm Bill’s price-loss and risk coverage accounting for almost two-thirds of the total………………………………………..Full Article: Source

Iran wants euro payment for new, outstanding oil sales

Posted on 08 February 2016 by VRS  |  Email |Print

Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month’s sanctions relief.
A source at state-owned National Iranian Oil Co (NIOC) told Reuters that Iran will charge in euros for its recently signed oil contracts with firms including French oil and gas major Total, Spanish refiner Cepsa and Litasco, the trading arm of Russia’s Lukoil………………………………………..Full Article: Source

S&P turns negative on 20 oil and gas companies

Posted on 04 February 2016 by VRS  |  Email |Print

Standard and Poor’s said Tuesday it had cut or was considering cutting the investment-grade credit ratings at 20 oil and gas giants, including Chevron Corp. and Exxon Mobil Corp. The ratings actions, which spanned integrated and independent producers, are an acknowledgement that $30 oil could shake the creditworthiness of even the largest oil and gas companies.
Chevron’s credit rating was cut one notch from AA to AA-. Exxon Mobil, which remains at the agency’s highest credit rating of AAA, was put on notice that its long-term credit rating was up for review………………………………………..Full Article: Source

Investors chase gold bonds in falling stock market

Posted on 29 January 2016 by VRS  |  Email |Print

The second tranche of India’s sovereign gold bond received a better response than the first, a government official said, as a price discount and its safe haven appeal amid a slide in equities attracted investors. The world’s second biggest gold consumer plans to sell 150 billion rupees in bonds linked to the metal in the financial year ending March 31, to wean investors off buying physical gold and stem the outflow of foreign exchange spent on gold imports.
In the second tranche, 316,000 applications were received for 2,790 kg of gold worth 7.26 billion Indian rupees ($106 million), far higher than the 62,169 applications for the first tranche for 915.953 kg of gold in November………………………………………..Full Article: Source

Commodity AUM Reflect Big Q4 Moves: Citi

Posted on 26 January 2016 by VRS  |  Email |Print

Citi’s Aakash Doshi and team take a look at commodity flows in hedge funds, ETFs, and indexes Monday, writing that asset under management estimates for the end of 2015 suggest a “sharp” 18% year over year drop, well below their 2011 highs.
Doshi writes that oil’s big losses in the fourth quarter were behind an $11 billion loss in passive index valuations, a trend he sees continuing this month. “The passive index market, valued at c$125Bn, is now c$100Bn below levels seen during the height of the commodity super cycle.” Meanwhile, market caps of commodity ETFs slid 8% in the fourth quarter, in large part thanks to gold’s decline in the face of an interest rate hike from the Federal Reserve………………………………………..Full Article: Source

China is a $US460 bln a winner from the commodities rout

Posted on 25 January 2016 by VRS  |  Email |Print

The pain from the rout in global commodity prices is sweeping through nations from Brazil to South Africa. The biggest beneficiary? Arguably it’s China, the nation often blamed for driving prices lower due to its slowing economic growth. China’s annual savings from the commodities rout amount to $US460 billion, according to calculations by Kenneth Courtis, former Asia vice chairman at Goldman Sachs Group Inc.
About $US320 billion of that is from cheaper oil, with the rest from other energy, metals, coal and agricultural commodities. Benefits are rippling through the economy, pushing down or steadying prices of everything from home heating and petrol prices to the cost of raw materials at factories. That’s also boosting China’s efforts to recalibrate its economic growth model away from a reliance on heavy industries and investment toward consumption and services………………………………………..Full Article: Source

Commodities rout exacerbated by speculative bets

Posted on 25 January 2016 by VRS  |  Email |Print

Arrium director and former Rio Tinto strategy chief Doug Ritchie said the dramatic fall in commodities has been exacerbated by speculative bets placed by hedge funds, which has resulted in steeper price falls for iron ore, coal and copper than in previous mining busts.
“With derivatives, when sentiment is upwards its going to have the impact of pushing commodity prices higher. And when sentiment is negative it is going to have a big impact pulling prices lower,” says Doug Ritchie, Arrium………………………………………..Full Article: Source

Gold monetisation acquires new polish

Posted on 25 January 2016 by VRS  |  Email |Print

Those who have not opted to participate in the Centre’s gold monetisation scheme (GMS) so far, and have gold idling in their bank lockers, may like to consider it now. The Reserve Bank of India on Thursday announced a few changes to the scheme to make it customer-friendly.
GMS offers to pay you interest based on the weight of the old gold (in the form of jewellery, coins or bars) that you deposit with the bank. The minimum deposit is 30 grams (995 fineness). The scheme is available for short terms of one to three years, a medium term of five to seven years and long term of 12-15 years………………………………………..Full Article: Source

IMF cuts global growth forecast as China slows

Posted on 20 January 2016 by VRS  |  Email |Print

The International Monetary Fund cut its global growth forecasts for the third time in less than a year on Tuesday, as new figures from Beijing showed that the Chinese economy grew at its slowest rate in a quarter of a century in 2015.
To back its forecasts, the IMF cited a sharp slowdown in China trade and weak commodity prices that are hammering Brazil and other emerging markets. The Fund forecast that the world economy would grow at 3.4 percent in 2016 and 3.6 percent in 2017, both years down 0.2 percentage point from the previous estimates made last October. It said policymakers should consider ways to bolster short-term demand………………………………………..Full Article: Source

Deals to be had in commodities rout

Posted on 19 January 2016 by VRS  |  Email |Print

The hottest deals in mining in 2016 will be the buying and restructuring of companies out of insolvencies, and picking up assets miners are selling to help fix balance sheets, advisers say. And the dire market for initial public offerings in mining, which produced only two floats on the ASX in 2015, could be the “new normal”, at least for 2016, Perth-based adviser Liam Twigger told The Australian Financial Review.
Charles Fear, chief executive of Perth-based corporate advisory firm Argonaut, said the market for most commodities was bouncing along the bottom, and mergers and acquisitions typically led a recovery, as assets were picked out of distressed companies at reasonable prices………………………………………..Full Article: Source

To Divine Chinese Commodity Demand, Keep Eye on Credit

Posted on 19 January 2016 by VRS  |  Email |Print

When China slows, commodities crash. If only it were that simple. Understanding the real cause and effect relationship between the two takes a bit more homework. Much of the weakness in global commodities isn’t China’s fault—at least not directly.
Oil at $30 and the attendant tumble in prices of iron ore, coal, copper and soybeans is as much a function of too much supply as slack Chinese demand. But China exerts powerful direct effects, and they are especially worth watching with the nation’s industrial economy in such a precarious position………………………………………..Full Article: Source

Commodities slide triggers ‘freight recession’ on US rails

Posted on 15 January 2016 by VRS  |  Email |Print

On the railways criss-crossing the western US farm belt, grain trains are so abundant you can’t give one away. Big agricultural commodity traders have been offering as much as $200 per covered hopper car to anyone willing to sublet their 110-car shuttle trains.
“You actually have to pay someone to take your cars,” says Dan Mack, vice-president of agricultural transportation and terminals at CHS, a large US grain merchant. Spare capacity in the US freight rail system underlines the breadth of a commodities rout that just entered its sixth year………………………………………..Full Article: Source

OPEC waiting for US oil companies’ bankruptcy

Posted on 12 January 2016 by VRS  |  Email |Print

OPEC will cut crude production and export in order to raise oil prices, after the US companies extracting hydrocarbons go bankrupt due to the current low energy prices, said Alexander Razuvayev, economist and director of the analytical department at Russian company Alpari.
Alpari is one of the leading companies offering forex trading in Russia. “The price war will end sooner or later,” he told Trend Jan. 11. “We can expect positive changes this year. As a result of falling oil prices, budgets are running out, shale companies go bankrupt. Those, who survive the crisis, will take the new position on the market at comfortable prices.”……………………………………….Full Article: Source

Hedge Funds Burned by Commodities Lose $40 Billion Since ‘08

Posted on 15 December 2015 by VRS  |  Email |Print

The biggest commodities meltdown in a generation has cost hedge funds more than $40 billion in seven years. Losses due to poor performance and investor withdrawals have left assets at the top 10 commodities hedge funds at less than $10 billion, compared with more than $50 billion in 2008, according to estimates from Trafigura Pte Ltd.’s annual report.
The trader and asset manager said the perception of commodities as an investable asset has been replaced by a “generalized aversion.” “Commodities as an asset class are not as attractive as before and we are seeing the consequences on our asset management division,” ……………………………………….Full Article: Source

Commodities are still no asset class to own

Posted on 15 December 2015 by VRS  |  Email |Print

The commodities research team at Julius Baer has produced a 2016 outlook. The commodity super cycle is in its final innings and structural headwinds should ease but cost deflation and abundant supplies should keep a lid on prices. While lower commodity prices brought tailwinds to consumers in 2015, 2016 might see increasing economic risks in resource-dependent countries and industries.
Abundant shale oil supplies warrant low oil prices for longer while soft currencies and structurally slowing Chinese demand growth should continue to weigh on metal prices. Gold is set to remain out of favour among investors given the outlook for sound growth, higher interest rates and muted inflation………………………………………..Full Article: Source

With oil hedges rolling off, U.S. shale producers face stiff test

Posted on 15 December 2015 by VRS  |  Email |Print

Cash-strapped U.S. shale oil producers are facing another sharp sell-off in a 18-month-old crude slump with reduced hedging protection, risking a severe hit to earnings if prices fail to recover. A Reuters analysis of hedging disclosures from the 30 largest oil producers showed the sector as a whole reduced its hedge books in the three months to September.
“Producers have survived 2015 as they benefited from large reductions in service costs while having a significant amount of production hedged at high prices,” said John Arnold, the Texas billionaire formerly at hedge fund Centaurus Advisors………………………………………..Full Article: Source

Private equity, pension funds eye more metal streaming deals

Posted on 15 December 2015 by VRS  |  Email |Print

Private equity and pension funds may provide the next wave of funding to the slumping mining sector through metal streaming deals as dedicated funding sources struggle to raise their own cash, industry sources said. With many miners unwilling to issue equity given their weakened shares amid falling commodity prices, streaming may help them avoid credit downgrades and fund new mines.
About $4.5 billion worth of these deals, an alternative form of financing where miners are paid cash upfront for future output, have been inked this year, making 2015 a record year for metals streaming as miners slash debt five years into a commodities downturn………………………………………..Full Article: Source

Russia plans for seven more years of $40 oil in message to Opec

Posted on 14 December 2015 by VRS  |  Email |Print

Russia is battening down the hatches for a Biblical collapse in oil revenues, warning that crude prices could stay as low as $40 (Dh147) a barrel for another seven years. Maxim Oreshkin, the deputy finance minister, said the country is drawing up plans based on a price band fluctuating between $40 and $60 a barrel as far out as 2022, a scenario that would have devastating implications for Opec, the Organisation of Petroleum Exporting Countries.
It would also spell disaster for North Sea producers, Brazil’s offshore projects and heavily indebted Western producers. “We will live in a different reality,” Oreshkin told a forum in Moscow. The cold blast from Russia came as US crude slipped to $36.14, pummelled by the continuing fallout from the acrimonious Opec meeting last week. Record short positions by hedge funds have amplified the effect………………………………………..Full Article: Source

Commodities Slump Hammers Sector’s Junk Bonds

Posted on 07 December 2015 by VRS  |  Email |Print

Deep losses on bonds from junk-rated U.S. energy and mining firms are rattling even seasoned investors, underscoring the challenges facing these companies amid a prolonged slump in commodity prices. Many bond prices are down 60% or more this year. Oil prices are still low due to a global supply glut, and metals prices are declining as China’s economic growth slows.
The moves are prompting worries that defaults could increase in the coming months, potentially sparking a fresh bout of selling that could spread to other parts of the junk-bond market. Among this year’s worst performers: some Linn Energy LLC bonds have fallen nearly 80%, Penn Virginia Corp. bonds are down 75% and Chesapeake Energy Corp. bonds are down 60%, according to figures from MarketAxess Holdings Inc. All three firms produce oil and natural gas in the U.S………………………………………..Full Article: Source

Moody’s: Stress in commodity sectors will be a key credit hazard in 2016

Posted on 03 December 2015 by VRS  |  Email |Print

The global commodity downturn is exceptionally severe in its depth and breadth and is expected to be a substantial factor driving the number of defaults higher on a global basis in 2016, says Moody’s Investors Service. “Commodity sectors are facing staggering adverse conditions driven by a potent mix of slower-than-expected global demand and excess supply,” said Mariarosa Verde, a Moody’s Group Credit Officer and lead author of the report.
Collapsing commodity prices have placed a significant strain on credit quality in the oil and gas and metals and mining sectors. These sectors have accounted for a disproportionately large 36% of downgrades and 48% of defaults among all corporates globally so far this year. Moody’s anticipates continued credit deterioration and a spike in defaults in these sectors in 2016, according to the report, “Growing Stress in Commodity Sectors is a Credit Hazard for 2016.” (Press Release)……………………………………….Full Article: Source

When bank balance sheets become scarce commodities

Posted on 27 November 2015 by VRS  |  Email |Print

Distortions are occurring in collateralised funding and swap markets meaning secured funding is weirdly costlier than unsecured. Bankers are blaming post-crisis leverage ratio regulation for the anomaly. But what really does the aberration in the collateralised Fed-funds spread reflect?
Credit Suisse’s FI team puts it relatively simply this Thursday: it’s all about the cost of balance-sheet rental, which is now as scarce a commodity as oil: Not only have intermediating dealers not yet fully priced in balance sheet costs, but we also expect that they won’t do so in the near future as well………………………………………..Full Article: Source

Banks turning their backs on Chinese commodities

Posted on 26 November 2015 by VRS  |  Email |Print

Banks are sceptical of and reluctant to lend to the commodities trade in China, due to the downturn in price and the risk of fraud and default. Over the course of a day-long conference in Beijing, commodity traders, bankers and lawyers all signalled that banks have been forced to re-evaluate their lending practices in China.
While many banks have been scaling back on commodities lending globally, the situation is aggravated in China, where a number of high-profile fraud and document-keeping scandals have ebbed away at trust in the sector. It’s led to consolidation in the market, where banks are focusing on their core business, leaving fewer willing to dabble in perceived higher-risk markets, and leaving producers and traders scrambling for the little finance available to them………………………………………..Full Article: Source

Banks face new pressure on commodity activities

Posted on 04 November 2015 by VRS  |  Email |Print

US banks that handle physical commodities will be forced to hold large new capital cushions under bold new Federal Reserve plans to hedge against costly disasters such as tanker spills or gas pipeline explosions. The Fed wants to use capital charges to discourage banks from risky activities that could threaten their survival in the event of a catastrophe, according to people briefed on the matter.
New restrictions would affect banks led by Goldman Sachs, Bank of America Merrill Lynch and Citigroup, some of which are already rethinking their role in commodities due to pressure from regulators and a decline in profitability in the area………………………………………..Full Article: Source

Fed mulling higher capital cushion for banks handling commodities

Posted on 04 November 2015 by VRS  |  Email |Print

The U.S. Federal Reserve is considering requiring banks that handle physical commodities to increase their capital buffers as a hedge against accidents, such as tanker spills or gas pipeline explosions, the Financial Times reported on Tuesday.
The paper, citing people briefed on the matter, said the U.S. central bank wants to use the new capital requirements to discourage banks from risky activities that could threaten their survival in the event of a catastrophe. The report suggests the Fed may be closer to finalizing new rules as part of a years-long review of its oversight of banks’ physical commodities operations………………………………………..Full Article: Source

Lenders must act to avoid another round of commodity defaults

Posted on 02 November 2015 by VRS  |  Email |Print

Shortly after he had been hiding under an overcoat as rebel soldiers tried to storm the Miraflores Palace, the Venezuelan president Carlos Andrés Pérez said: “Give them bullets. I want to be back in soon.” The attempted coup of February 1992 was the dramatic culmination of a sequence of collapsing oil prices, financial turmoil and the “Caracazo” anti-austerity riots of 1989 that left hundreds dead.
Venezuela defaulted on its debts in 1990, 1995 and 1998, following a well-established pattern. “Spikes in commodity prices are almost invariably followed by waves of new sovereign defaults,” note Carmen Reinhart and Kenneth Rogoff in their authoritative survey of global financial crises. Countries dependent on commodity revenues run up their budgets during the good times. Their currencies are buoyed by exports, and they surf domestic housing and credit booms………………………………………..Full Article: Source

Attention, Indians! Your gold will soon earn money for you

Posted on 26 October 2015 by VRS  |  Email |Print

The gold monetisation scheme will be launched in the coming weeks, Indian Prime Minister Narendra Modi announced on Sunday. “We have brought gold monetisation scheme and will launch it in the coming weeks before Diwali and Dhanteras, when gold is particularly sought after,” Modi said.
“Gold can be converted from dead money to an economic force. To leave gold lying as dead money is behaviour not in sync with the modern times,” he said. Noting that accumulating gold as a form of economic security is deeply rooted in India’s social tradition, Modi exhorted people to help convert gold to the nation’s economic strength by joining in various schemes to be launched soon………………………………………..Full Article: Source

Commodity contagion sparks second credit crisis as investors panic

Posted on 12 October 2015 by VRS  |  Email |Print

The collapse in commodity prices has sparked a second credit crisis as investors dump high-yield bonds, shattering the fragile confidence necessary to support global markets. Those calling it a Lehman moment forget their history. Current events have chilling similarities to the Bear Stearns collapse and mark the start of a new crisis, not the end.
The world of commodity trading has been thrown into chaos as the cost of borrowing to fund operations soars. Glencore has become the poster child for the sector’s woes as its shares have more than halved in value during the past six months. More worrying has been the impact on the group’s credit profile………………………………………..Full Article: Source

Bank of England quizzing UK banks over commodities exposure

Posted on 09 October 2015 by VRS  |  Email |Print

The Bank of England has asked British banks to report their exposure to commodities and ensure they are mitigating risks effectively, a source familiar with the situation said on Thursday. Prices for oil and other commodities have fallen sharply in recent months, and earlier on Thursday the Financial Times reported the BoE move had been triggered by the sharp fall in the shares of commodities and mining company Glencore.
“This is something being done in the course of normal supervision,” the source said, adding that the request had been made by the Prudential Regulation Authority, the arm of the BoE in charge of day-to-day bank regulation………………………………………..Full Article: Source

Risk of global financial crash has increased, warns IMF

Posted on 08 October 2015 by VRS  |  Email |Print

The risk of a global financial crash has increased because a slowdown in China and decline in world trade are undermining the stability of highly indebted emerging economies, according to the International Monetary Fund (IMF). The Washington-based lender of last resort said the scale of borrowing by emerging market countries, whose debts are vulnerable to rising interest rates in the US, mean policymakers need to act quickly to shore up the financial system.
José Viñals, the IMF’s financial counsellor, said the threat of instability and recession hanging over economies including China, Brazil, Turkey and Malaysia was one of a “triad of risks” that could knock 3% off global GDP………………………………………..Full Article: Source

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