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Commodities Briefing 28.May 2015

Posted on 28 May 2015 by VRS |  Email |Print

Australia, one of the engine rooms of the decade-long global commodity boom, is forecasting a staggering 90 per cent plunge in spending on projects, calling time on its biggest resources bonanza since the 1850s gold rush. After a collapse in prices from oil to iron ore, the value of the nation’s approved and financed mining and energy projects is forecast fall to about $15 billion in 2017, from $226 billion at the end of April.
Planned iron ore projects worth at least $10 billion have been canceled since October, according to the Department of Industry and Science. Billionaire Gina Rinehart’s Roy Hill — due to ship later this year — is Australia’s last remaining mining project being developed worth $5 billion or more…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Société Générale SA told Jefferies LLC that it’s interested in buying its Bache commodities-trading unit — but only parts of it, Christian Berthelsen and Tatyana Shumsky report. It’s an indication of how unattractive raw-materials trading is amid fewer profits and more regulation. SocGen expects to take more than 300 of Bache’s top clients by revenue, including producers and end users of materials ranging from crude oil to aluminum.
But many brokers on Jefferies Bache’s energy team are moving to U.K. brokerage ED&F Man Capital Markets after SocGen decided to absorb just a third of client assets. “This year has been a reality check for the industry,” said Matt Simon, head of futures research at consulting firm TABB Group LLC. “It’s a simple case of what the profitability is going to be. There’s lower commissions, fewer instruments you can profit on, stronger capital commitments and growing pressure on the business.”……………………………………Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Oil companies have had to make dramatic changes to their view of the future following the collapse in the oil price at the end of last year. The surge in US shale oil production and Saudi Arabia’s reluctance to step aside and make room for the extra oil have forced the industry to reassess the viability of their exploration and development efforts.
Cuts to capital expenditure have been made and then redoubled. Even so, profits have fallen sharply for the big oil companies in the first months of 2015, whilst some exploration and production companies have been forced to reclassify their higher cost reserves as uneconomic at current prices…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

When Saudi Arabia argues next week that Organisation of Petroleum Exporting Countries (Opec) should keep up production to fight the rise in US shale oil levels, prices will be on its side.
Crude plunged for eight of nine weeks prior to group’s November gathering, when the kingdom faced down opposition from the majority of fellow members, who advocated output reductions to tackle a global glut. With oil companies around the world cutting investment, US output peaking and prices up, Saudi Arabia’s strategy will be extended at Opec’s semiannual meeting on June 5, say Societe Generale and Bank of America…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Analysts are making their predictions for what OPEC members will do at their semi-annual meeting on June 5 and none of it looks good for U.S. oil companies. OPEC is not exactly a transparent institution and members engage in all kinds of psychological warfare before they meet behind closed doors. But the one thing everyone seems to agree on is that the 12-nation cartel is not going to reduce output.
Cutting back on oil production now would eliminate all the gains the cartel has made in the past year. Maintaining output of about 30 million barrels a day in light of new supply coming from higher-cost producers has sent price dramatically lower…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Prominent analysts have announced often and persistently that gold will drop to $1,000, $850, and even below $500. Mainstream media, “gold-bashers,” and banks encourage the “gold is going lower” meme. But gold is real money, in contrast to the paper stuff that is valuable only as long as people, businesses, and countries retain confidence that it will devalue, but only slowly.
The world runs on paper and digital fiat currencies so don’t expect banks, central banks, or western governments to encourage or support gold. However, with the constant barrage of anti-gold, anti-silver, pro-dollar and pro-paper media stories, it is not surprising that people are confused, worried, and scared regarding gold prices, the value of real money, and the inevitable demise of paper currencies…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

The price of gold has gone nowhere in the last two years and has created a 2-year basing pattern. That is constructive for gold prices as the stronger the base, the stronger the next trend. But a trendless market also indicates a battle between bullish and bearish forces.
The strong U.S. dollar has pressured precious metals since last summer. Also, the talk of interest rate hikes by the Fed is said to have negatively influenced gold. We have explained previously that we hold an alternate view on the relationship between interest rates and gold, as detailed in “What Is Really Driving Gold.”……………………………………Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Gold has 2 major hurdles to overcome and they are as follows: 1. Interest rate rises in the US. 2. Money printing by other nations, Japan, UK, Europe, etc. Both support the US$ and put downward pressure on gold. The specter of interest rate increases in the US hangs over the precious metals sector like the Sword of Damocles.
The Federal Reserve has stated that they want to ‘normalize’ rates now that the period of Quantitative Easing is over. Employment figures published by the Department of Labour have shown a steady increase in the number of jobs created over the last twelve months or so. On the inflation front; core prices, which exclude food and energy rose at a yearly pace of 1.8% for the month of April, which is the fastest monthly rise for almost a year……………………………………Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Gold had a rough start to the week as the yellow metal dulled when it fell below the key $1,200 level, due to the strength of the U.S. dollar. For most of 2015, gold has been trading around $1,200 as it struggles to find its footing amid speculation over interest rate hikes that is causing gyrations in the markets.
Gold has mostly been more of a technical trade. Commodities are priced in U.S. dollars, so as the greenback moves higher, instruments like oil and gold generally move lower. And, of course, the reverse of this strong correlation also applies…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Copper hit a one-month low on Wednesday due to concerns about the economic outlook for big metals consumer China, while aluminium fell to its lowest in a year on rising production. Aluminium is in oversupply with a huge stock overhang, and output has continued to rise this year, with the latest industry figures showing daily average production rising to 68,500 tonnes in April.
Norwegian producer Norsk Hydro said it would increase aluminium output by 35,000 tonnes per year. “Although LME stocks are falling there’s (still) a lot of aluminium around and (then) we see large increases in production. Aluminium needs a deficit to erode overhead stocks,” Fastmarkets head of research William Adams said…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

After five years of strong growth in demand, 2014 saw the world steel sector enter turbulent times. What can we expect in the next five years…? MEPS expects that 2015 will be a year in which global steel supply and demand turn negative. This situation is likely to develop as a result of weakening steel requirements and oversupply in some of the main consuming markets around the world - including, China, United States, Japan, Russia and Brazil.
Despite the anticipated modest decline in global steel demand, this year, MEPS predicts that annual average steel consumption, in most regions of the world, will increase steadily in the future. However, the gains will be much more sober than those recorded in the first half of the current decade…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Global iron ore demand will contract over the 2020s as steel consumption growth in China peaks, according to Citigroup, which reduced its long-run price forecast for the raw material by 32 percent. The long-run estimate was cut to $55 a metric ton from $81 as the world’s major mining companies added more cheap supply, analysts including Ivan Szpakowski wrote in a report on Wednesday. From 2016 to 2018, prices may average $40, it said.
“The next decade is shaping up to be a complete reversal of the past decade,” Citigroup said. After a period of rapid demand growth, the entry of new miners and rising costs, the years ahead will see lower demand, marginal producers forced out and major miners dominating supply growth, it said…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

The world’s largest iron ore producers are moving in the right direction by continuing to increase output even as demand cooled in top consumer China, sending prices tumbling and leaving smaller, high-cost producers struggling to survive. That seems to be the main conclusion of experts from Goldman Sachs Group, which wrote in a report Wednesday that “efforts to support prices via voluntary production cuts would be counter-productive,” as quoted by Bloomberg.
While such cutbacks are appealing in theory, any such proposal is misguided, according to Goldman’s analyst Christian Lelong. Brazil’s Vale, BHP Billiton and Rio Tinto, the report argues, are unlikely to create a cartel and agree on output cuts to stabilize prices, with waning demand expected to increase competition…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

A recent rebound in iron ore prices has done nothing to sway the downbeat outlook from forecasters, with Atlas Iron declaring lower price assumptions will see it write $130 million to $160 million off the value of development assets, and Citi slashing its long-term forecast to $US55 a tonne.
The Atlas writedowns come after the company this month survived the dual pressure of low prices and a highly geared balance sheet by striking plans to raise $180m of equity and agreements with contractors to lower operating costs to let it restart its suspended West Australian mines…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Gains of as much as 20 percent since January haven’t convinced Chinese hedge funds that demand for copper is improving in the world’s biggest-consuming country. “The outlook for China’s demand will be worse, not better,” said Shen Haihua, a senior portfolio manager at Hong Kong-based HFZ Capital Management, a joint venture of U.K. hedge fund Red Kite Management Ltd. and Maike Metals International, a Chinese metals trader. HFZ Capital says demand will weaken in the second half of the year.
Because China uses half of the world’s copper to build new power lines, cars and appliances, investors piled into the metal this year as the government took steps to revive the economy. Some of that cash is flowing into Chinese hedge funds that have expanded after regulatory changes in 2013, helping to fuel domestic trading of commodity derivatives that now outpaces the growth of legacy markets like the London Metal Exchange…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

As we saw in the previous part, WTI (West Texas Intermediate) oil futures gained 0.05% last week. While retail investors don’t have easy access to the futures market, they can benefit from access to safer, low-cost avenues to bet on WTI crude prices. The first avenue is energy ETFs such as the United States Oil Fund (USO), an ETF that tracks prompt WTI crude oil futures. Shares of USO trade on the NYSE (New York Stock Exchange) like company stock. The fund lost 1.3% last week.
The second avenue is commodity ETFs such as the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). It holds many American energy companies that have exposure to oil prices due to their upstream oil production operations…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

There are now over 1,600 exchange-traded products available to investors, and total assets are quickly approaching $2 trillion. Traditionally, the primary way an investor could get access to a diversified portfolio of stocks was through a mutual fund. But today, many of these investment products mirror the overall market, providing very little differentiation. Good managers are hard to come by.
This, coupled with sometimes high expenses, has resulted in subpar performance for much of the mutual fund industry. If an investor’s goal is to replicate the holdings of an index, another investment option is the often low-priced exchange-traded fund. However, there are complexities in this emerging investment class. With the continued interest in utilizing exchange-traded products for investors’ portfolios, it’s crucial to consider a number of things before you invest in an ETF…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Hedging the euro and the yen has amplified returns for Japan and Europe investors in recent years, but will the trend continue? Over most timeframes, UK investors in Japan and Europe who have hedged the yen and euro have reaped stronger returns.
In the last year, three years and five years, the picture has been the same: of the pound strengthening against those currencies, and chipping away at the returns of those with unhedged exposure. With central banks in both Japan and Europe printing more money to buy bonds to boost their economies - known as ‘quantitative easing’ - many investors are betting that trend will continue…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Foreign-currency purchases by Russia’s central bank will put a stop to the ruble’s world-beating rally, according to a Bloomberg survey of economists. Buying as much as $200 million a day to replenish reserves will halt gains in the ruble, 19 of 28 economists said. While reserves may swell to $380 billion this year, they’ll stay below the level they were when Russia annexed Crimea last March, a median of 25 estimates showed.
“The central bank has been putting the brakes on the ruble,” said Gunter Deuber, an analyst at Raiffeisen Bank International AG in Vienna. “The plan isn’t enough in volume terms to turn around the ruble FX market. However, it’s a strong signal to FX market participants that the central bank sees enough ruble appreciation for the time being.”……………………………………Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

China’s renminbi has become the main currency for payments between China and the rest of the Asia-Pacific region, more than tripling in use over the past three years and outstripping the Japanese yen, the US dollar and the Hong Kong dollar in the process, according to data from the clearing system, Swift.
The shift demonstrates that the Asia-Pacific region is at the forefront of the renminbi’s gathering acceptance as a currency for international trade settlement and investment. The Chinese currency was used in January-April for 31 per cent of payments between China (including Hong Kong) and the rest of the Asia-Pacific region, up from 7 per cent back in April 2012, Swift said…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

Tax versus trade is an issue that has stalked the EU Emissions Trading System (ETS) over its 10 years of existence, but is fading in importance as the world moves towards increased use of both methods of cutting greenhouse gas pollution.
The European Union set up the ETS in 2005 as a way of getting round policy-making rules that require the unanimity of member states to decide on a tax. Following years of legislative fine-tuning to overcome problems such as a glut of carbon allowances, they say it is on track and has advantages over a tax because it can be linked to a political target to cut emissions…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

At first, the numbers and company names flashing on a big board in Beijing’s financial district suggest a booming market. A closer look indicates otherwise: The scrolling list rotates the same dozen or so trades, all from last year.
The lights from the Beijing Environment Exchange — one of seven pilot markets in China for trading carbon — raises questions for the country as it prepares for next year’s roll-out of a nationwide system that could help the world’s biggest emitter of heat-trapping carbon dioxide rein in its emissions…………………………………….Full Article: Source

Posted on 28 May 2015 by VRS |  Email |Print

The value of carbon pricing schemes rose to $50 billion in 2015, according to a new assessment by the World Bank. It outlines its findings in the latest edition of Carbon Pricing Watch, which examines the state of the world’s carbon markets in advance of its more detailed report due later this year.
As of 1 April 2015, emissions trading schemes were valued at $34 billion, up from $32 billion the previous year. This was despite the repeal of Australia’s carbon pricing mechanism in July 2014 at the hands of prime minister Tony Abbott. Emissions trading schemes are not the only way to put a price on carbon. For the first time, the World Bank has also valued carbon taxes across the world, which it finds amount to $14 billion…………………………………….Full Article: Source

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