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Commodities Briefing 13.Oct 2008

Posted on 13 October 2008 by VRS |  Email |Print

From FT: Commodities traders are rushing their private bilateral contracts into exchanges and clearing houses as they race to reduce their counterparty risk amid a deepening financial crisis.

The transfer of the opaque over-the-counter deals comes as observers warn that commodities, where trading has ballooned in the past five years, could be the next market hit by counterparty failures….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From Nytimes.com: Commodity prices stumbled badly in the third quarter, harpooning investors in natural resources mutual funds. This category was by far the biggest loser among all the domestic stock fund categories tracked by Morningstar, down 36 percent, on average, in the three months through September.

Few funds escaped the scourge that struck this diverse category, which is as varied as pure-play energy stock funds to portfolios tracking broad-based commodity indexes. The recent steep decline in oil prices left the typical natural resources fund far behind many funds that invest in other troubled sectors of the economy, like the financial industry….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From Indiatimes.com: Goldman Sachs, one of the two biggest commodity traders on Wall Street, dramatically cut its price forecasts across oil, base metals and grains on Monday, warning that crude prices could fall as a low as $50 a barrel.

“We have underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand,” its commodity markets research team lead by Jeffrey Currie said in a report dated October 13….. Full Article: Source

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From Times Online: Opec is to meet in Vienna on November 18 to discuss a reduction in supply after a significant fall in the price of oil.

Chakib Khelil, the Algerian Energy Minister who is also president of the oil producers’ cartel, said that the meeting would discuss measures to rebalance supply and demand — interpreted as a hint that Opec members, which account for 40 per cent of global production, want to cut supply and boost prices….. Full Article: Source

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From Reuters: Sharp falls in commodity prices have yet to cause an exodus by pension fund investors from raw materials but the credit crisis could prompt a shift to simplicity and away from complex derivatives.

“We haven’t seen them (pension funds) coming out yet and we don’t anticipate it,” said Eric Kolts, vice president, Commodity Indices at Standard & Poor’s. But he said he believed investors would look for simpler products…… Full Article: Source

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From Busrep.co.za: The recent decline in precious metal prices in the face of a global slowdown is going to hit South Africa’s export revenue - but that damage could be offset by the declining oil price, although falling rand strength could cause complications.

This is according to Cees Bruggeman, the chief economist at First National Bank. The Wall Street Journal reports that the credit crisis is contributing to the fall of commodities markets as investors grow increasingly worried about doing business with financial firms that create complex derivative products pegged to oil, gold and grain markets….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From Thestar.com.my: Global commodities are expected to continue trading on shaky grounds for at least another five months, given the ongoing mass liquidation by hedge funds in the commodity markets.

Over the past three months, fears of commodity investment redemption remains as the driving force behind the broad sell-off in major commodities. The current credit crisis could also lead to a global economic meltdown that affects both hedge funds and commodity indices….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From FT: According to its enthusiastic proponents, diversification provides the only free lunch in investing, promising to lower the volatility of a portfolio without necessarily lowering returns.

For the first half of 2008, it seemed as though adding commodities to a portfolio offered not just the free lunch but extra helpings of pudding as well, as oil, grain and industrial metals all soared. Since then, however, many commodity indices have given up most of those gains and some investors are getting cold feet….. Full Article: Source

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From Business-standard.com: Acting tough on the single commodity exchanges, the Forward Markets Commission (FMC) has tightened the process for granting permission to restore futures trading in de-licensed commodities.

The commodity markets regulator has sought details of steps taken by commodities exchanges to make contracts liquid, in at least two cases. It has also asked for clarifications about the failure of these contracts in the past. Permission for futures trading in additional commodities has always been a tough task for product-specific exchanges due to their limited access to resources….. Full Article: Source

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From Weeklytimesnow.com.au: Farm commodity prices have slumped sharply over the past month as global economic and financial conditions worsen, according to a leading rural bank.

In its latest agri-business review of Australia and New Zealand, Rabobank Australia says prices for most farm exports fell by 10-15 per cent during September and early October. “Price falls generally reflected the influence of a stronger US dollar and a deteriorating outlook for demand,” the review said….. Full Article: Source

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From Forbes: Saudi Arabia, the world’s top crude oil exporter, will maintain shipments to key North Asian refiners unchanged next month, despite a dive in prices to below $80 for the first time in a year, sources said.

While most refiners had expected the kingdom to keep their monthly supply allocations steady at full contractual volumes, the formal notice over the weekend follows last month’s OPEC deal to trim output last month and growing anxiety among some members over the impact of the financial crisis on prices….. Full Article: Source

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From Moneyscience.com: The current explosion of activity in commodity markets - expressed by the amount of capital flowing into this asset class and the remarkable growth of hybrids, structured notes and commodities indexes - makes this course essential for all those needing a thorough and detailed understanding of both spot and derivative transactions.

The programme will cover fundamental issues such as volume risk, mean-reversion, the forward curve, and the theory of storage. Plain-vanilla and exotic options on commodities will be analysed, as well as a real options approach to energy physical assets. Lastly, different ways of investing in commodities will be presented and discussed, as well as the virtues of holding commodity baskets to diversify a portfolio and hedge against inflation….. Full Article: Source

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From Ameinfo.com: In an unprecedented move last week, central banks practically stopped lending gold to banks and other participants in the precious metals market.

Last week the one-month gold lease rate rocketed to 2.6%, the highest since May 2001 and way above its five-year average of 0.12%, according to the London Bullion Market Association. A major turning point for gold and silver prices is at hand…… Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From Guardian: With the markets going haywire, and investors concerned that their savings could disappear in a puff of smoke, a growing number of people are choosing to transfer their money into something more tangible than a bank account.

There have been queues outside some bullion merchants, and one online gold broker, Bullion Vault, is opening around three times as many accounts a day as it was in early September. One couple told the BBC website they had gone so far as to sell their house and invest the cash in gold. “The phones haven’t stopped ringing,” says a spokesman for bullion merchant Baird and Co….. Full Article: Source

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From Times Online: Tougher economic times cannot be a pretext for abandoning climate change targets. The climate has changed. There can now be no doubt. Change is happening and it is definitely man-made: the changed financial climate is a plausible pretext for any nation that wishes to renege on its environmental promises.

Last March EU leaders agreed to a target of reducing CO2 emissions by 20 per cent by 2020 on 1990 levels. Now, in advance of Wednesday’s EU energy summit, the Polish Prime Minister, Donald Tusk, is leading a retreat. He is likely to resist a reform to the trading-emissions scheme by which EU governments would be forced to buy the right to emit carbon dioxide. Mr Tusk, echoed by Frank-Walter Steinmeier, the German Foreign Minister, was quite explicit that the international financial crisis was the culprit….. Full Article: Source

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From Gulf-times.com: According to Lawrence Eagle, JP Morgan’s global head (Commodity Research) the oil market was moving to a glut after a year of tightening and prices may move towards the lower end of the range between $60 and $70 a barrel.

“It has the potential to go that low, but I suspect Opec is going to be keener to keep it around current levels,” he wrote ….. Full Article: Source

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From Livemint.com: The high prices of gold have severely hit the demand for coins and bars in India. Gold prices, which touched a record high last week, could witness some correction by the end of November, an industry official said.

“Gold may witness some correction amid high volatility. Gold prices may hover around Rs12,000-13,000 per 10g by November-end,” industry expert Bhargav Vaidya said.
The high prices of gold have severely hit the demand for coins and bars in India. “We have witnessed poor demand due to high prices this festive season. Demand will increase only if prices start easing,” he said…… Full Article: Source

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From Marketoracle.co.uk: George Soros, one of the world’s foremost investor-speculators, has said many times that he stays away from financial derivatives because “no one understands them”. In the world of finance, derivatives might be comparable to the theoretical study of linear particle acceleration in nuclear physics.

Such theories appear to be “understood” mainly based on current assumptions accepted in academic circles, often with little provable working knowledge of how such currently-held theories might ultimately manifest themselves over the long run in the real world. The problem with assumptions is that they generally change…often sooner than we think….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From Seekingalpha.com: While the U.S. economy is sinking beneath the weight of the recent financial crisis, the heaviest blows have been dealt on an international scale. As a global financial slowdown is coupled with a decrease in demand for commodities, emerging markets are the hardest hit.

The ProShares Short MSCI Emerging Markets ETF (EUM) has helped some investors capitalize on this weakness by tracking the inverse of the battered MSCI emerging stock index. While market and regulatory factors make short ETF strategies like EUM very risky as stand-alone investments, products like these can be extremely useful as part of a larger investment strategy….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From Nytimes.com: When financial markets go bad, it seems as if everything is a problem and nothing is a solution. Some fund managers have blamed rising commodity prices for the poor performance of emerging stock markets this year. Others offer an alternative explanation: falling commodity prices.

What is broadly acknowledged is that these markets, from China to Brazil and Russia to Thailand, have cost investors plenty. The average emerging-market stock fund lost 26.4 percent in the third quarter, worse than almost any other segment of the fund universe tracked by Morningstar. Not one of 126 funds specializing in emerging-market equities showed a gain for the period….. Full Article: Source &sq=commodity&st=nyt&oref=slogin

Posted on 13 October 2008 by VRS |  Email |Print

From Resource Investor: Panic flight to cash, margin calls and irrational fear knocks gold and especially silver lower on the paper-contract dominated spot cash markets while the real physical bullion markets get even tighter. The divergence between pricing in the paper futures market and the physical bullion market reaches extreme levels for silver as the gold:silver ratio goes over 80:1.

A popular saying is that ‘the end of the world doesn’t happen very often,’ but looking at the world’s financial markets this week suggests that people are exceptionally fearful and acting like this is the end of the world as we know it. Is it? Has the world finally been thrust into an unrecoverable tailspin? Do we now head into the abyss of chaos and bedlam?…. Full Article: Source

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From Dubaicityguide.com: Dubai Gold and Commodities Exchange (DGCX) announced the successful completion of its largest-ever physical settlement of gold and steel rebar futures contracts, valued at $25.20m, by the Dubai Commodities Clearing Corporation (DCCC).

The transaction is a testimony to the efficient and robust settlement framework provided by DCCC, a wholly owned subsidiary of DGCX. It also reinforces the Exchange’s position as a secure marketplace used by industry participants to source their gold and steel rebar requirements….. Full Article: Source

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From Financeasia.com: Most Asian currencies fell last week, but the winners in the long-run will be the economies that are most sheltered from global markets. Jakarta’s stock exchange took a battering last week and the Indonesian economy is under pressure from the global financial crisis but, ironically, the country’s currency could be a good bet to outperform its neighbours in 2009.

That, at least, is the conclusion of Sebastien Barbe, a currency strategist at Calyon, who argues that closed economies are likely to fare better than open ones once the crisis peaks and the global economy slows down into next year. This should benefit the Indian rupee and the Indonesian rupiah….. Full Article: Source

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From Sfgate.com: The financial crisis and a deepening economic downturn are threatening to delay efforts to deal with another pressing global crisis. Hopes for action had been running high since both Republican John McCain and Democrat Barack Obama had pledged to make cutting U.S. greenhouse gas emissions a top priority.

But environmentalists now fear that the next president may be more focused on reviving a flat-lining economy, and Congress could be wary of supporting any measures that might slow growth or raise energy prices for consumers….. Full Article: Source f=/c/a/2008/10/12/MNO313EQ65.DTL&tsp=1

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From Commodityonline.com: The problem of plenty is hitting one of the hot commodities–nickel. The International Nickel Study Group (INSG) has forecast a production-consumption surplus of 110,000 tonnes in 2009.

the INSG forecast forecast will pose hard questions of the world’s nickel producers, particularly those poised to bring new capacity on line. INSG estimates that the global refined nickel market will record a production-consumption surplus of 30000 tonnes this year, based on expected production of 1.41 million tonnes and usage of 1.38 million tonnes….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From SMH: The stunning collapse in oil markets accelerated on Friday, sending a barrel of crude plunging below $US78 as investors grew more pessimistic about the resolution of the global economic crisis.

Oil hasn’t been this cheap in 13 months - a rare silver lining for consumers amid a rapidly imploding financial landscape. Crude prices have been cut almost in half since surging to a record near $US150 barrel over the summer….. Full Article: Source

Posted on 13 October 2008 by VRS |  Email |Print

From Reuters: Further declines in oil and metals prices after coordinated global interest rate cuts suggest that commodities will not return to their giddy heights until the world economy is on more solid footing.

Wednesday’s performance also undermines the theory that commodities move independently of other markets. This argument made sense on days when oil and metals prices rose and equities fell but becomes less meaningful when they slump together in the current financial crisis…… Full Article: Source

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