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Commodities Briefing 15.Dec 2008

Opalesque Exclusive: Freight derivatives likely to survive plummeting decline of shipping, Celent report sees mid 2009 turnaround for industry
Commodity boom is so over
Investors focusing on energy, currency and rates
Goldman predicts oil to hit $30 a barrel
Goldman slashes 2009 commodity price forecasts
What next for China iron ore prices?
HUI surges while Canadian miners sleep
Auto bailout affects commodities
A falling dollar could create a new gold rush
Australia cuts commodity sales forecast 10% on global crisis
The U.S. current account deficit and the dollar
Will we see a big upward move in gold?
'Backwardised' gold goes into meltdown
Russia to attend OPEC summit
Iran says to propose OPEC oil cut of 1.5-2 mln bpd
OPEC divisions again on display heading to Algeria
Wall Street firm predictions could mean $10 Venezuelan oil
Algeria sees OK for gas projects in 3 or 4 months
Pound slips below euro on Britain's high streets
Panic as Ukraine's currency plummets
As China slams on brakes, commodity countries left reeling
Victoria wants to be Asia-Pacific's main carbon trading hub
Derivatives, a $531 trillion dollar monster
Commodities' future looks bleak - look for short opportunities
Is the US ready to tackle global warming?
Basic metal inventories rise on weak demand
The falling commodity prices, global recession and the African economies
Tatas could bid for African iron ore mine
Russia: Huge grain harvest no boon for farmers
TAQA and RBS Sempra Commodities set up new energy company

Posted on 15 December 2008 by VRS |  Email |Print

From Kirsten Bischoff, Opalesque New York: Research firm Celent has released a report on the freight industry. It focuses specifically on the still relatively new freight derivatives market, long anticipated as being “the next big thing” in finance.

For the past two months, since a record high (11,793 in May 2008) the Baltic Dry Index has fallen 93% to 668 due largely to the falling demand for dry goods, an oversupply of ships, and a freeze in credit. Celent’s report sets out to determine if the relatively young freight derivatives market (valued at $125bln) will be able to survive the impact of the larger financial crisis on the shipping industry.

The report concludes that even through the plummeting decline in the demand of dry goods, the freight derivatives market has sustained. In fact, participation of financial players within the industry has grown from 15% in 2007 to 40% in 2008.

“Furthermore,” the report’s authors state “the growth in the size of these markets means that sooner rather than later the derivatives market will overtake the underlying physical freight market”.

Analyzing the underlying physical freight market
Over the past months quite a few managers have begun looking to the Baltic Dry Index as one of the indicators of how bad, and how long the financial crisis might be.

In separate investor communications during October 2008, Harch Capital Management referenced the plummeting index as it discussed the bleak outlook for the future (well into 2009) and the Okeonos Shipping managers explained how frozen credit in shipping was strangling the industry (Source). The Celent report echoes both discussions.

When will it turn around?
Citing the rise in demand for some commodities, a rise in the FFA forward curve, a rise in providers catering to the market, and the deepening and maturing of the market, Celent looks to mid-2009 for the possibility of a turnaround in shipping.

In a recent Opalesque A Square publication discussing the future of the shipping industry, reference was made to the structural nature of emerging market demand for key commodities and a likely acceleration of globalization of production as firms cut costs, as one of the factors that would contribute to a future and rapid rebound in the industry.

Celent’s report additionally looks to the benefits of carbon emission reduction schemes to increase the cost of shipping contracts, passed on to end users and reflected in the FFA market. Corporate website: Source

Opalesque note: For further information on the shipping industry A Square has multiple articles covering the different aspects of this industry. See:
Article Source: Source

Posted on 15 December 2008 by VRS |  Email |Print

From Washingtonpost.com: Commodities, you’ll remember, are products that are used to make other products — natural gas, crude oil, metals, grains, cattle and so on. They are roughly equal in quality regardless of where they come from, so Russia can be just as big of an oil player as Saudi Arabia.

For the past decade of global growth, commodities were the place to be. Here in the United States and in other developed countries, people enthusiastically bought things made of commodities….. Full Article: Source

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From IHT: Investors head into what for many will be the last full trading week of the year expecting more U.S. interest rate cuts, but many remain rattled by emerging dissent over how governments should help ailing economies.

They will also get another check on the post-credit-crunch health of the financial sector, with fourth-quarter earnings from the banking giants Goldman Sachs and Morgan Stanley ….. Full Article: Source

inv,mkt movs

Posted on 15 December 2008 by VRS |  Email |Print

From FT: Oil prices will fall to $30 a barrel in the next three months, Goldman Sachs said yesterday, as it lowered its 2009 forecast for oil prices to $45 a barrel, down from a previous prediction of $80 a barrel.

The forecast is an awkward U-turn for a bank that, until recently, had been one of the big bulls of the oil market and only a few months ago warned about the danger of a “super-spike” to $200 a barrel….. Full Article: Source

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From Tehrantimes.com: Goldman Sachs slashed its commodity price forecasts, citing a collapse in global economic growth and demand because of the credit crisis.

Forecasts for industrial metals aluminum and copper traded on the London Metal Exchange were cut substantially to $1,410 and $2,950 a ton next year from $2,310 and $5,230, respectively….. Full Article: Source

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From Mineweb.com: The latest research weekly from Macquarie suggest that iron ore contract prices for China in 2009 will be around 20 percent lower than in 2008, copper TC/RC costs are rising and aluminium imports and exports continue to fall.

The 2009 annual iron ore negotiations are approaching, and once again, news headlines are teeming with all kinds of arguments from different iron ore stakeholders….. Full Article: Source

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From Resourceinvestor.com: While premiums for physical gold and silver remain stronger than an acre of garlic (more about premiums at the end of this report); while shares of big U.S. mining companies fared much better and both gold and silver advanced, shares of the smaller, less liquid Canadian miners and explorers remained comatose in the three weeks since the last full Got Gold Report.

That may be about to change, however, if the underlying action on quote screens is any guide….. Full Article: Source

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From Livenews.com.au: Oil prices slid on Friday after the collapse the US automakers bailout plan increased worries about the stability of the US and global economies.

This week’s OPEC meeting was supplanted as a factor, but will re-emerge when the details of the new version of the bailout plan are released….. Full Article: Source

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From Forexpros.com: UN economists are forecasting a very hard decline for the US Dollar in 2009 today. Considering that the USD rally has been extremely fast in 2008 and mostly concentrated in the last two quarters, a correction to the downside might not be too unexpected.

The economists point to increasing federal indebtedness, overbought bonds, and bottoming out yields as evidence that the risk in the USD in 2009 is biased to the downside….. Full Article: Source

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From Bloomberg: Australia, the world’s largest shipper of coal, iron ore and wool, said earnings from commodity exports may be 10 percent less than forecast because of the global financial crisis.

Overseas sales are estimated at A$192 billion ($127 billion) in the year ending June 30, 2009, the Canberra-based Australian Bureau of Agricultural and Resource Economics said ….. Full Article: Source

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From Resourceinvestor.com: The current combination of a weak dollar and a large current account deficit is explained by long lags in the relation between U.S. external accounts and the real effective exchange rate, high oil prices, and the “return differential” between U.S. holdings of assets overseas and foreign holdings of U.S. assets.

A reduction of the U.S. current account deficit could occur with no further dollar weakening….. Full Article: Source

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From Seekingalpha.com: Did you know that the Federal Reserve Bank owns gold certificates? Mounting evidence suggests the Fed intervenes in and participates in the gold and silver markets on a regular basis.

Interviewed Monday last week on the “Trading Day” program of Business News Network in Canada, former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed’s attempt to rescue the U.S. economy….. Full Article: Source

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From Theaustralian.news.com.au: Backwardation is the situation where the price of gold for immediate delivery is higher than the price for future delivery — not an unusual occurrence in some commodities but very rare for gold.

At New York’s close on Friday, spot gold was selling at $US822.35 an ounce while the metal for February delivery closed at $US820.50….. Full Article: Source

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From AP: The head of OPEC says Russia and three other non-cartel members will take part in the oil producers’ summit next week in Oran, Algeria.

Chakib Khelil says Russia will send its deputy prime minister in charge of energy and its oil minister to Wednesday’s summit. The other guest countries invited by the 14-member cartel are Oman, Azerbaijan and Syria….. Full Article: Source

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From Guardian: Iran will propose that OPEC cuts oil output by between 1.5 million and 2 million barrels per day (bpd) when the group meets in Algeria on Dec. 17, Iran’s oil minister was quoted as saying on Sunday.

Ministers of the Organisation of the Petroleum Exporting Countries are expected to announce an output cut at the Algeria talks to shore up prices that have plunged about $100 a barrel since a July peak. On Friday oil was trading around $46 a barrel….. Full Article: Source

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From AP: OPEC, the oil-producing group that consumers worldwide love to hate, is fine tuning its strategy heading into a meeting this week in Algeria, determined that its fourth attempt in as many months to reverse plummeting crude oil prices will succeed.

Working against the Organization of Petroleum Exporting Countries is its own past — a history pockmarked with the rival priorities of its 13 member states and major policy blunders in times of economic crises….. Full Article: Source

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From Laht.com: The price of Venezuela’s mix of medium-grade and heavy crude oil fell again to close on Friday at $31.36 a barrel, marking a decline of $3.13 on a week before, according to the Energy and Oil Ministry.

Venezuelan oil is now fetching just over half the $60 a barrel forecast for next year in the Budget Bill submitted by Finance Minister Alí Rodríguez Araque….. Full Article: Source

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From Reuters: Algeria expects to approve three gas projects in the next three or four months worth about $4 billion and with a capacity of up to 10 billion cubic metres a year, a Sonatrach official said on Sunday.

The ventures involve variously Gaz de France GAZ.PA, Total and Repsol and would be expected to start production in 2013, Said Sahnoun, head of the associations division of Sonatrach,said….. Full Article: Source

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From Guardian: The government is facing a growing backlash over its rescue package for the economy after the pound slumped to below parity with the euro on British high streets and at airports for the first time since the single European currency was launched a decade ago.

Sterling’s decline to a value of less than a euro, after commission charges, is seen by economists and opposition politicians as a pivotal ‘psychological moment’ - and evidence of declining faith in the British economy on global currency markets….. Full Article: Source

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From AFP: The national currency of Ukraine, whose pro-West government wants to join the European Union, has almost halved in value in the last six months, prompting panic amongst its heavily indebted population.

The sudden fall in the hryvnia has sent Ukrainians rushing to exchange booths to change local money for hard currency, in scenes that recalled the hyperinflation suffered by the country in the early 1990s….. Full Article: Source

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From AFP: When China hits the brakes, commodities exporters half a world away have to shift to a lower gear, as the rapidly deteriorating fortunes of the copper sector shows.

The global financial crisis has impacted China’s copper-wired construction industry, machine makers and electric appliance producers at an amazing speed, with demand at home and abroad crumbling abruptly….. Full Article: Source

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From Theage.com.au: Victoria is battling it out with NSW to become the main carbon trading hub in the Asia-Pacific region in a move that would bring significant investment and jobs into the state.

The Victorian Government and the Melbourne Carbon Market Taskforce, which includes industry heavyweights such as National Australia Bank, Rio Tinto and Toyota, will undertake a feasibility study of establishing the carbon trading hub, which is designed to scoop up what could be millions of dollars in business opportunities….. Full Article: Source

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From Gather.com: The derivatives market today is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago.

Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them….. Full Article: Source

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From Learningmarkets.com: Rio Tinto (RTP) announced that they are laying off 14,000 workers. Combined with a proposed financing restructure the company hopes to weather the storm in commodity prices over the long term.

The CEO called the current market environment of commodity price collapses “unprecedented.” Personally, I would have to agree….. Full Article: Source

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From Thenational.ae: By the time the UN climate conference in Poland wound up on Saturday, expectations that under the incoming Obama administration America will rise to the challenge of tackling climate change, were not as strong as they had been.

A prediction that next December’s meeting in Copenhagen might merely lay the groundwork for further talks and not a ratifiable treaty, was met with dismay by many of the conference participants….. Full Article: Source

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From Business24-7.ae: Inventories of basic metals will continue to grow in coming months on weak demand, Goldman Sachs said in a note to clients, with stocks rising close or even beyond historical levels.

The investment bank lowered its forecasts across the base metals complex, and sees aluminum demand declining 1.7 per cent year-on-year in 2009, copper 3.5 per cent, nickel 1.9 per cent and zinc 0.3 per cent….. Full Article: Source

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From Americanchronicle.com: The unprecedented commodity price boom that began in October 2001 and that lasted for more than seven years came to an end in July 2008 amid slowing global economic growth.

According to the World Bank´s Global Economic Prospects 2009, overall, global GDP growth is projected to decline to 0.9 percent in 2009 while growth in developing countries will fall to 4.5% from 7.9% recorded in 2007….. Full Article: Source

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From Hindustantimes.com: Tata Steel could bid for a strategic stake in Mbalam iron ore mine in Cameroon by partnering Sundance Resources, the company that owns the West African mine, investment banking sources said.

International media reports said Sundance Resources Chairman George Jones recently returned from a road show to promote Mbalam’s potential. Sources familiar with the development said Jones met senior Tata Steel officials last month on equity participation in the project….. Full Article: Source

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From Moscowtimes.ru: This year Russia is enjoying the biggest grain harvest it has ever seen — and farmers couldn’t be more worried. By November 2008, the country’s harvest stood at 112.5 million tons, a 31 percent increase over last year’s 81.8 million tons.

But grain prices have plummeted since mid-March, devastating farmers’ earlier prospects for profit and leaving many to hope for solvency….. Full Article: Source

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From Cpifinancial.net: Abu Dhabi National Energy Company (TAQA) and RBS Sempra Commodities, a commodity company, have set up what is to be henceforth known as TAQA Gen X, effectively a joint venture which will focus on investments in the downstream energy business in North America.

TAQA Gen X also said it had made its first investment which it said was an agreement to acquire from JPMorgan all of the outstanding equity interest in JPMorgan’s indirect subsidiary BE Red Oak Holding LLC, which will result in the transfer of control of BE Red Oak LLC….. Full Article: Source

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