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Commodities Briefing 26.Nov 2008

Posted on 26 November 2008 by VRS |  Email |Print

Benedicte Gravrand, Opalesque London: Living in a Material World – the Commodity Connection, by Kevin Morrison, 308 pages, published in June 2008 by John Wiley and Sons Ltd. A timely introduction to commodities from a veteran journalist who specialises in the subject.

This is an extremely readable book that takes the readers on a tour around the most important raw materials, from their sources to their uses, passing through their dealings in the financial market. Kevin Morrison, a journalist who has worked for the Financial Times, Reuters and The Sydney Herald Tribune, travelled the world, met with “farmers, miners, oil ministers, financiers, environmentalists, lawyers and policy advisors” and brought together a well researched, fast-paced and informative piece on our “material world”, covering energy, agriculture, climate, metals and finally trading, adding odd anecdotes to information, as well as notes and references.

The book examines some of the factors behind the moves in commodity prices and their link with climate change, the connection between the consumer and the raw materials, the every-day relevance of commodities. It is aimed at investors and consumers.

Energy
The first section discusses energy, its economic value and its political importance. The author takes a look at the re-emergence of coal, renewable energies such as wind and solar nuclear power, oil, hydrogen cars, biofuels.

For example, wind and solar might be the best source of energy but cannot be stored; meanwhile, the demand fore uranium (for production of electricity) will increase by 70% by 2030; and Opec production is depleting 5% a year, which means it is short of 1.5 million barrels, daily. I quote: “there are four goals of the so-called ‘second generation’ biofuels, and economics is not one of them”.

He concludes that in order to avoid an environmental catastrophe, significant changes will have to be made at local, regional and national levels, and that the expansion in global coal supplies will divide traditional government allies.

Agriculture
The chapter on agriculture examines its increasing connection to energy through the biofuel production, the impact of greater meat consumption on the supply of grains and oil seeds, and the influence of government subsidies.

The author remarks on the greater land space being taken up for biofuel production, and the widespread political and business support ethanol has received this decade and its economic implications. He looks at the production of poultry, cattle , milk, corn syrup, sugar (and Brazil), land scarcity due to population growth, super seeds taking over the diversity of their predecessors, the use of nitrogen attributed to corn planting.

The pro-corn ethanol policy, government subsidies for agriculture, monitoring of our food intake (for better supply-demand balance) are some of the issues that need to be addressed.

Environment
The next part looks at the environment as a commodity. He explains carbon footprints, environmentalism, global warming, the costs of climate change, tradable carbon permits and the emissions market, the need for forests and biodiversity, CDMs, and water (“the irreplaceable commodity”).

Global warning and water shortages may end up being a security issue too, he says, and climate change requires many solutions. Interestingly, carbon pricing may become as common as oil or gold.

Metals
Chapter 4 focuses on metal, especially widely-used copper, and the impact of greater demand for metals.

For example, the demand for copper is so great (“it has made the electronic age possible”) that has attracted metal thieves who take on “power lines, manhole covers, sewer plates, aluminium light poles, parking meters and motorway signs.”

The author looks at copper production in Chile, in Africa, its travelling around the world for refining and manufacturing, its being traded in various exchanges. He warns on the constraints on supply due to “depleted resource bases, political risks, water availability and substitution from new mineral sources.”

Traders
The final chapter looks at the trading of commodities. The author talked to Chicago traders and examines the CBOT’s role as the global price barometer for grains and oilseeds, electronic trading and how it has changed the market, futures and options, hedge funds and other players, indices.

He noted the political sensitivity of commodity prices: “when they are high, politicians blame speculators for manipulating prices; when they are low, in particular where agricultural commodities are concerned, there are calls for more assistance for farmers.” He warns about excessive prices, a good signal of that being when there is too much attention on commodities in the media. “This concentration can lead to a bubble, as seen with the dot com experience.” Although we are not quite there yet.

Posted on 26 November 2008 by VRS |  Email |Print

From Reuters: The Common Fund for Commodities (CFC) is sufficiently funded until 2012 despite the global financial crisis, but falling interest rates could erode its earnings in the near term, the fund’s head said on Tuesday.

The Amsterdam-based fund is an independent financing body operating under the umbrella of the United Nations to promote diversification in economies dependent on raw materials….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Hardassetsinvestor.com: There was a lot of excitement among gold aficionados last week. A $34-an-ounce end-of-week rally did a lot to brighten their spirits. Monday’s $28 follow-through punched spot COMEX gold above the $800/ounce mark for the first time since October 20.

Gold rallied because … because … well, just what was the reason? Some among the chattering classes would have us believe the spike was foretold by gold tipping into what they dubbed “backwardation.” Well, not gold per se. Rather, gold forward rates….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Mineweb.com: Top commodities fund manager, Evy Hambro of Blackrock World Mining Fund, predicts the commodities demand collapse will last for three to five years.

Commodities markets are facing years of depressed pricing as users of everything from Malaysian tin to South African platinum see orders dry up and cancel raw material shipments, BlackRock World Mining Fund, the world’s largest commodities fund, said on Tuesday….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Zawya.com: The price of oil may return to between $70 and $80 as early as 2010, according to an oil industry leader. He was speaking at the DIFC Forum, the second major business conference that forms part of DIFC week, the Dubai International Financial CentreDubai International Financial Centre’s prestigious annual series of business events.

Saddad Al Husseini, Former Executive Vice President for Exploration & Production, ARAMCO said: “If we don’t see any major discovery of oil sources, we will see long-term challenges in the supply of oil. By 2010 the price of oil will come back to the 2005 levels of $ 70 to $ 80 per barrel and in the long term will further rise to between $80 and $90.”…. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Bloomberg: BHP Billiton Ltd. abandoned its yearlong pursuit of Rio Tinto Group, blaming the rout in commodities prices and the credit-market squeeze for derailing the biggest hostile takeover.

Marius Kloppers, chief executive officer of the world’s largest mining company, said the combination of $40 billion in new debt and regulatory hurdles made the $66 billion acquisition too risky at a time when the slowing global economy reduced demand for raw materials. The transaction was worth as much as $194 billion in May before metals prices slumped. …. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Publicbroadcasting.net: Global miner Rio Tinto Ltd said on Wednesday it was confident it could sell billions of dollars in assets to pay down massive debt, despite concerns about a lack of buyers, a day after rival BHP Billiton Ltd dropped a bid for the firm.

BHP’s shock decision on Tuesday to pull its $66 billion bid sent Rio’s shares plunging by almost 40 percent, amid concerns Rio would struggle to sell assets and cut its $39 billion in net debt during a severe global economic downturn….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Guardian: Commodities’ fall from grace in recent months has been fast and furious and further losses cannot be ruled out as the economic and demand landscape deteriorates over coming months.

This will add to deflation fears, but not for long because many commodities are expected to soon hit a floor as output cuts curb supplies. The notable exceptions could be copper and oil….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Busrep.co.za: Commodities markets are facing years of depressed pricing as users of everything from Malaysian tin to South African platinum see orders dry up and cancel raw material shipments, BlackRock World Mining Fund, the world’s largest commodities fund, said.

Steel makers worldwide are reducing inventories rather than make more steel, lowering demand for iron ore and coking coal, while a collapse in car making has left South Africa’s once-booming platinum industry in tatters, Evy Hambro, the $4.7 billion fund’s managersaid….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Indiatimes.com: As worries over global slump deepen with many countries slipping into recession, investors have started shifting their fund to gold, better known as a safe heaven.

And this is exactly what was witnessed in the Great Depression of 1929. Ninety years back, the Great Depression gripped US and Europe after the big bang crash in US stock markets. People had dumped currencies and rushed for gold, fearing that banks in many countries would fall and their currency would be wiped out….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Guardian: Using commodities to hedge potential losses in stock markets has not worked lately, and the tighter link among assets these days means diversification benefits may not be as great as before.

Hedge funds, pension funds, mutual funds and wealthy individuals who invested in commodities on the theory that they move independently of other asset classes watched helplessly as the global economic nosedive turned commodities, once the top asset class, into the year’s worst performer after equities….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Structuredproductsonline.com: ProFunds Group, manager of short and leveraged funds, has launched 12 exchange-traded funds (ETF) providing short or leveraged exposure to commodities, the Euro and the Yen.

The ETFs tracking broad commodities and crude oil indexes, as well as the ETFs based on the Euro and the Yen, will begin trading today on NYSE Arca, while ETFs benchmarked to gold and silver are to begin trading in the coming weeks. …. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Canadianbusiness.com: Investors who thought the so-called commodity super-cycle fuelled by growing demand from China and other emerging economies would insulate them from the current financial meltdown have received a harsh wake-up call over the past few weeks.

Prices for just about everything from base metals and lumber to grains and uranium have all fallen dramatically along with the stock of the companies that produce them….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Reuters: U.S. grain prices fell on Tuesday, as investors took profits after a broad-based commodities rally in the previous session that was helped by optimism over the U.S. government’s bailout of bank Citigroup.

Wheat, corn and soybean all fell around 0.7 percent. “The overall commodity market is taking a pause as some investors are seen squaring off their positions after massive gains overnight,” Paek Jong-min, a trader at Woori Futures, said….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Sify.com: Gold and silver have been sought and prized since prehistoric times. They have also been both a cause of war and a medium of exchange.

Gold has traditionally been the standard by which the value of anything is assessed; it has also been a universally accepted medium of exchange. Silver does not lag far behind in the history of global trade….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From NBR: A China-based metals trader, Fengli Group, has emerged as the major shareholder backing the reverse listing of a Chilean iron ore company, Minera Varry, on the NZAX.

Shareholders in shell company RLV are set to vote on the deal on December 10. Other listing pre-conditions have already been met….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Ukpress: Consumers should expect to see energy prices starting to drop early in the New Year, Ofgem said. Ofgem chief executive Alistair Buchanan said the regulator was putting “as much pressure as we can” on suppliers to announce their plans following a drop in oil prices from 140 US dollars to below 50 US dollars.

He told the Business and Enterprise Select Committee: “We’re putting as much pressure as we can on to the companies to announce what they plan to do….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Forbes: Japan’s prime minister wants to limit speculative trading in his country’s carbon emissions trading scheme, a senior policy negotiator said on Tuesday.

Kunihiko Shimada, principal international policy coordinator for the Ministry of the Environment, said Japanese Prime Minister Taro Aso said he wants to examine ways of curbing speculative trading in Japan’s emissions trading trial scheme. …. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Commodities-now.com: IntercontinentalExchange, Inc.(ICE), a leading operator of global regulated futures exchanges and over-the-counter (OTC) markets, announced plans to introduce more than 50 additional cleared energy contracts in its OTC marketplace beginning December 5, 2008, and extending into 2009.

ICE currently lists over 100 cleared OTC energy contracts, and today more than 90% of ICE’s OTC transaction volume is cleared. The first set of 21 new products consists of North American power and natural gas swaps, as well as swaps related to the global oil markets. The initial set of new contracts available for OTC clearing includes:…. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Thenewamerican.com: “We must act quickly and we must act boldly to transform our entire economy — from our cars and our fuels to our factories and our buildings,” writes Barack Obama on his campaign website in the introduction to his energy section, as part of his Blueprint for Change.

He also outlines some of his proposals for the environment and the energy situation, which include everything from increasing taxes on oil companies so that he can redistribute the money to new energy industries to implementing an economy-wide “cap-and-trade” system for carbon emissions….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Resourceinvestor.com: Trade and environmental regimes may need to be more closely linked in a post-Kyoto world. This article discusses trade policy initiatives’ potential contribution to global carbon emissions reduction and the potential impacts of proposals for carbon-reduction-motivated geographical trade arrangements.

It suggests that the need to link environmental and trade policy may render the WTO obsolete. How much can trade policy contribute to global carbon emissions reduction and what are the potential impacts of proposals for both unilateral and regional carbon-emission-reduction-motivated trade policy arrangements now circulating? …. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Timesonline.co.uk: Alistair Darling’s Pre-Budget Report on Monday contained at least one item that raised not a flicker of attention at Westminster but which will have been keenly noticed far away in the Gulf:

He has decided that Islamic bonds will not form part of the Government’s borrowing programme in the near future. …. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Indiatimes.com: It has been a long felt need to have a transparent currency derivatives platform in the country.

With increasing globalisation and robust performance of the economy, businesses in India have been rapidly integrating with the world, especially in the past few years, forcing them to face the additional risk of exchange rate fluctuations besides other risks….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Commodities-now.com: The global economic turmoil has started having an impact on the wind energy industry in Europe. Some companies are cutting down forecasts and production for 2009 and the market is showing the first signs of slowdown.

“The current economic situation is slowly affecting the wind energy industry,” remarks Frost & Sullivan Research Analyst Gouri Nambudripad….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From UNI: Russian Energy Minister Sergey Shmatko today said his country will go with Organisation of Petroleum Exporting Countries (OPEC), if it decides to cut oil production to protect its interests, due to falling margins in view of the tumbling oil prices.

”Russia will cooperate with OPEC to defend its interest. We would like to understand the process involved. Russia would coordinate with OPEC,” Shmatko said….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Reuters: New Zealand’s fledgling carbon market has been thrown into limbo only weeks before its planned start date, after the incoming government met an election pledge to review emissions trading, industry officials said.

The scheme was to be the first carbon cap-and-trade scheme outside of Europe and had been designed to help the country meet its obligations under the Kyoto climate-change protocol….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Investopedia: Commodities, whether they are related to food, energy or metals, are an important part of everyday life. Similarly, commodities can be an important way for investors to diversify beyond traditional stocks and bonds, or to profit from a conviction about price movements.

Years ago, most people did not invest in commodities, because doing so required significant amounts of time, money and expertise….. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From Mineweb.com: A glance at the world’s top performing gold stocks, from the world’s top performing equities subsector.

Within smashed up markets, optimists sometimes try to bet on when the bottom is touched, thus enabling (in theory, always) for good timing of investment inflows, or speculative cash, for the optimum returns game. …. Full Article: Source

Posted on 26 November 2008 by VRS |  Email |Print

From AP: Gold prices were largely unchanged Tuesday, but other commodities, including energy and agriculture futures, declined as investors were hit with more discouraging economic news.

The Commerce Department said third-quarter gross domestic product declined at a 0.5 percent annual rate, outpacing the 0.3 percent first estimated a month ago. While analysts had expected the number to decline, it was still the worst reading since growth fell at a 1.4 percent pace in the third quarter of 2001, during the last recession….. Full Article: Source _yzjYnPIP8gD94M7NT00

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From Investors.com: Commodity markets sank Tuesday amid more evidence of a shrinking economy, with crude oil settling down 7%, pressuring metals and grains lower as well after a broad one-day rally.

The Reuters-Jefferies CRB index, which tracks 19 futures markets, fell more than 2% after data showed the economy shrank in the third quarter at its fastest pace in seven years….. Full Article: Source

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