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Commodities Briefing 27.Feb 2009

iFAST Research says Malaysian commodities not promising in 2009 despite outperforming in January this year
Commodities market to bottom out
Globalization steadies commodity prices
Energy sector must invest GBP230bln to meet targets
Water 'more important than oil' businesses told
Index funds help lift commodity prices - panel
Losses to trigger move to active commodity investments
Making money in commodity stocks during this recession
Russia lurches into reverse as commodities give way
Russian cabinet considers developing commodity exchange trading
RBS renews commodities commitment
CFTC probing United States Oil Fund in crude trades
Crude advances as Opec supply cuts kick in
Oil prices won't return to normal in coming five years
Obama budget proposes shift to green energy
Obama plan has $79 bln from cap-and-trade in 2012
US energy giants throw weight behind solar projects
Australia to reveal carbon trading legislation
Could the gold price collapse?
Gold’s devilish advocate
Gold hedging slows but gold ETFs have grown more so far in 2009 than in whole of 2008
Gold: still the only serious safe haven
Cooler gold bullion, warmer gold stocks?
Platinum-Gold price differential almost zero
Russia may buy metal to buoy producers
Copper rises for fourth day on speculation about China’s demand
Precious metals prices slide as gold demand falls
China to pour 100 bln Yuan into metal and logistics
Weaker currencies no cure for Asia's slump
Euro mixed against other major currencies
Pound rises broadly on UK asset plan
SEC may get 13% funding increase
Africa to get new energy-focused commodities exchange later this year
Number of ETFs listed on Borsa Italiana exceeds 300
"Black Swan" impacts commodities
Prediction markets: An uncertain future

Posted on 27 February 2009 by VRS |  Email |Print

From Komfie Manalo, Opalesque Asia: A study made by iFAST Research Team and published on Fundsupermart.com in January said that the Malaysian commodity market was not promising in 2009. The study entitled: “Malaysia Commodities Updates – A Cyclical Downturn,” said that in the short to medium term, Malaysian commodities depended on the magnitude and duration of the economic downturn.

Without a hint of convergence to steadiness, it is hard to anticipate when the commodity market will start to recover. The future price movements of both crude oil and palm oil are reliant on various factors, the study said. Besides the demand and supply factors, substitution effect and speculation on commodities also contribute to price movements.

The researchers said they were not able to predict when the down cycles of both commodities prices would come to an end. Both crude oil and palm oil are currently trading at a level below their cost of production.

Impact of lower palm oil prices on the Malaysian economy
Palm oil prices have a strong positive correlation with economic growth. Higher palm oil prices would be good for the Malaysian economy as rising palm oil prices would help to increase export revenue. Lower palm oil prices will not bode well for families that are involved in the cultivation and manufacturing process of palm oil. Plantation companies contributed about 8% to the total market capitalization of the KLCI Index.

Sluggish outlook for palm oil
According to iFAST, demand for palm oil will be lower this year because of slowdown in the economies of major exporters. China, the largest exporter of Malaysia’s palm oil, is expected to grow at a slower pace of 8.5%. The remaining top 10 exporters are Pakistan, Netherland, the U.S., India, Japan, Jordan, Ukraine, the UAE and Singapore. With countries like the U.S., Japan, Singapore, and some European countries falling into a recession, and most countries generally growing more slowly, demand recovery will not be immediate, the study said.

Supply is also affected because of the rising cost of production. Some plantations have stopped cultivating or discontinued fertilizing activities.

Impact of oil prices on the Malaysian economy
Lower crude oil prices would mean lesser government revenue and lower government expenditures. The government would then have to borrow from debt markets to fund future spending.

High oil prices hurt the consumer because of high inflationary pressure. Malaysia experienced an all-time-high inflation rate of 8.5% in July and August 2008 after the government raised the petrol price by a whopping 41% to $0.72 per liter.

Crude oil outlook
iFAST researchers cited figures released by the U.S. Energy Information Administration in November 2008, which said that the short term outlook for both energy demand and prices would be weaker on deteriorating growth prospects and continuous withdrawal of funds from commodity markets.

For the coming 12 months, the weaker demand will be the dominant factor for lower crude oil prices apart from the ability of OPEC to restrain supply. In the short term, iFAST expects oil prices to remain at depressed levels but added that such low prices were not sustainable for the medium to long term.

Malaysia commodities lose out in 2008
Data released by Thomson Reuters Lipper showed that commodity funds in Malaysia posted an average decline of 33.3% in 2008 and an average gain of 4.61% last month, said Asianinvestor.net.

A report by Asianinvestor.net (Opalesque 30-Jan-09), said that mutual funds registered for sale in Malaysia declined by an average of 22.28% last year. (fundsupermart.com.my).

Posted on 27 February 2009 by VRS |  Email |Print

From Miningweekly.com: UK-based financial institution Barclays Capital expects that, while the commodities outlook for 2009 is inauspicious, there are signs that the market has begun to bottom out. Barclays capital director of commodities research Kevin Norrish states that the last five months has been exceptionally tough for the mining industry in terms of decreased demand for commodities, which has depressed prices.

The speed of the commodities price decline has been unprecedented and he adds that this is evidenced by the fact that industrial and energy commodity stocks have lost 60% of their value in the last five months….. Full Article: Source

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From Nationalpost.com: This paper explores commodity and manufactures price over the past three centuries to answer three questions: Has commodity price volatility increased over time? The answer is no: there is little evidence of trend since 1700. Have commodities always shown greater price volatility than manufactures? The answer is yes.

Higher commodity price volatility is not the modern product of asymmetric industrial organizations - oligopolistic manufacturing versus competitive commodity markets - that only appeared with the industrial revolution….. Full Article: Source

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From Lowcarboneconomy.com: Over £230 billion needs to be spent by energy firms to meet energy demand as well as carbon emissions and renewable targets by 2025, according to a new report.

The study by Ernst & Young, an update to its 2008 Costing the Earth study, suggests £234 billion will have to be spent on infrastructure to ensure energy supply and to meet renewable and emissions targets….. Full Article: Source

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From Guardian: Dwindling water supplies are a greater risk to businesses than oil running out, a report for investors has warned. Among the industries most at risk are high-tech companies and agriculture, which uses 70% of global freshwater, says the study, commissioned by the powerful CERES group, whose members have $7tln under management.

Other high-risk sectors are beverages, clothing, biotechnology and pharmaceuticals, forest products, and metals and mining, it says….. Full Article: Source

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From Forbes.com: Funds that buy commodities futures for long-term investment do help to raise prices, with news last year that an institutional investor would be plowing billions of dollars in commodities sparking the recent bull run in crude oil, a USDA conference was told Thursday.

“I am a speculator,” said Timothy Rudderow, president of hedge fund Mount Lucas Management Corp, based in Princeton, New Jersey, to laughter and some clapping at the USDA’s annual Agricultural Outlook Forum here….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Reuters: Disappointment with returns on widely used commodity indices and worries about higher losses because of a change in the structure of the market are expected to trigger a move to more actively managed strategies.

Institutions such as pension funds have typically used commodity indices such as the S&P GSCI and Dow Jones AIG .DJAIG, which use nearby futures contracts. Collapsing commodity prices have meant the two indices last year slumped 46 and 35 percent respectively….. Full Article: Source

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From Stockhouse.com: Monetary authorities around the world are implementing rampart growth in the money supply and quantitative easing in the form of negative real interest rates; meanwhile, the global economy is in free fall. The factors have opposite effects on commodity prices.

We came to the logical conclusion that we wanted to give our portfolio exposure to the commodities that have significant monetary uses, aren’t cyclical, or both….. Full Article: Source

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From Financialpost.com: Russia has lurched into reverse after 10 years of uninterrupted growth driven by revenue from oil, gas, metals and consumer spending. While almost half of all Russians still have no savings, people with spare cash like Zaporozhtseva say they are guarding it to pay bills and survive as wages decline and the number of jobless rises beyond six million.

The government expects the economy to shrink 2.2% this year after expanding about 7% a year since 1999….. Full Article: Source

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From Individual.com: Russian Prime Minister Vladimir Putin has urged the government to eliminate causes that contribute to monopolism and restrict competition, Gazprom-owned NTV channel reported on 26 February.

Speaking at a government session devoted to the discussion of a programme for the development of competition to 2012, Putin said: “The government has already submitted to the State Duma a package of draft laws on improving the antimonopoly legislation….. Full Article: Source

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From CNN: Royal Bank of Scotland Group PLC (RBS) renewed its commitment to commodities Thursday, unveiling a huge increase in income at its commodities operations at the same time as it announced the U.K.’s largest ever corporate loss.

The bank said income from the commodities division jumped to GBP778 million in 2008 from GBP17 million the previous year, and its joint venture RBS Sempra Commodities LLP performed “ahead of expectations” in the nine months since its formation….. Full Article: Source

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From Bloomberg: The U.S. Commodity Futures Trading Commission said it is investigating the involvement of United States Oil Fund LP and other investors regarding an increase in the price difference between two oil contracts this month.

The United States Oil Fund is managed by Alameda, California-based United States Commodity Funds LLC and maintains holdings in West Texas Intermediate crude oil, the grade traded on the New York Mercantile Exchange since 1983. The investigation announced today is part of the CFTC’s larger national oil-market probe that was announced last year. …. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From FT: Oil prices rose on Thursday on evidence that Opec supply cuts were tightening the market, but gold tumbled as investor inflows into gold exchange traded funds faltered. ICE April Brent rose $1.56 cents to $45.85 a barrel, trading in a range of $44.15-$46.38.

The United Arab Emirates said it would sell less crude to customers in Asia in April than in March, which some traders viewed as a possible signal that Opec would agree further supply cuts at the oil producer group’s next meeting in March….. Full Article: Source

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From Zawya.com: Russian Deputy Prime Minister and Finance Minister Alexei Kudrin said here on Thursday that oil prices will not return to normal over the next five years.

In a statement carried by Interfax, Kudrin attributed that to the lower oil prices and declining demand in world markets….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From AP: President Barack Obama’s first budget plan moves aggressively to tackle climate change and shift the nation from reliance on foreign oil to green energy.

The proposed budget released Thursday by the White House would rely on $15 billion a year, beginning in 2012, from auctioning off carbon pollution permits to help develop clean-energy technologies, such as solar and wind power….. Full Article: Source

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From Bloomberg: President Barack Obama’s budget plan assumes $78.7 billion in revenue in 2012 from the sale of greenhouse-gas emission permits to polluters, putting pressure on Congress to pass legislation by early next year.

A “cap-and-trade” program would generate a total of $645.7 billion by 2019, according to the budget blueprint Obama sent to Congress today. …. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Businessgreen.com: Two of the largest energy companies in the US have this week delivered a major boost to the solar industry, announcing plans for new solar farm projects that combined will generate a gigawatt of power.

California-based Pacific Gas and Electric (PG&E) announced on Tuesday plans for a five-year solar energy programme designed to generate up to 500MW of power, providing enough energy for 150,000 homes….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Msnbc: The government plans to unveil legislation next month to create an Australian carbon emissions trading scheme designed to tax climate changing pollution beginning next year, Climate Change Minister Penny Wong said Friday.

Wong said her government remained set on a July 2010 start date for the scheme, in which major polluters will buy and trade permits to emit carbon gases….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Fnarena.com: What pushes the gold price? Let’s break it down. The first, simple, equation to consider is that of demand and supply. We’ll look at demand first. Gold is an unusual beast in that it is both a commodity and a currency.

On the commodity side, there is some industrial usage of gold but the bulk of “commodity” demand is derived from the jewellery market. Indeed, so proportionately minimal is gold’s use in industry that we’ll completely ignore it within the equation. Thus we can say that gold is never consumed or destroyed. Even when a piece of jewellery or some other trinket is melted down, no gold is lost out of the sum total. This makes gold virtually unique….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Hardassetsinvestor.com: No matter what side you line up on, you can’t have ignored the $300 rally in gold prices since late October. For the February COMEX contract, that amounts to a 46% increase; pretty much a replay of the run-up that ended last March. That should prompt you to wonder about the odds of gold topping out again.

No doubt, the answer to that depends upon your gold Weltanschauung. But let’s play devil’s advocate for the moment. What factors argue for a gold sell-off? Or, at least, for keeping a lid on the metal’s ascendance?…. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Mineweb.com: Along with the GFMS analyses and those from CPM, the gold market always studies the VM Group’s reports, issued on behalf of Fortis Bank, with special interest and the latest of these turns up some interesting data on dehedging, official gold sales and ETF holdings. The summary of the report is noted below.

In its report, VM Group records that global gold dehedging slowed in Q4 08, with outstanding hedge positions falling 1.5 Moz (45t), the smallest decline since Q4 06. Measured in committed ounces the decline was a smaller 1.1 Moz (34t)….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Moneyweek.com: Talk about a gold rush. Last week the yellow metal jumped back above $1,000 an ounce – not far off last spring’s record of $1,033 – before slipping back on profit taking, raising its gains to 45% since October.

Gold usually moves inversely to the US dollar, but it has gained around 13% this year, despite the greenback rising by around 10% against the euro. What’s more, it has hit new records in a range of currencies, including pounds (£690), euros and Canadian and Australian dollars….. Full Article: Source

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From Mineweb.com: The price of gold might again be testing record highs, driven by investors seeking shelter from the financial blizzard, but shares in companies mining the precious metal now look a better bet.

With financial markets tumbling and currencies crumbling, investors have fled to gold as a traditional safe haven in times of trouble, and as a bulwark against the long-term inflationary effects of massive and various government stimulus packages and monetary easing by central banks….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Commodityonline.com: Platinum made a surprising jump higher in mid-February, reaching at $1,087/oz on the 12th, 11% above its level at the start of the month and its highest since September 2008. While such a move could easily be reversed, there are a few solid reasons why platinum has returned to favour.

On the supply side, quarterly reports from the mining houses showed that production is responding to lower prices, albeit relatively slowly….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Bloomberg: Russia is considering buying metals to support domestic producers hit by the global financial slump, according to an economic adviser to President Dmitry Medvedev.

The idea, proposed last year by the nation’s largest mining company OAO GMK Norilsk Nickel and the billionaire who controls Russia’s biggest aluminum producer, depends on balancing the budget, Arkady Dvorkovich said in an interview today. …. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Bloomberg: Copper rose for a fourth day on the London Metal Exchange on speculation that purchases in China, the world’s biggest buyer, will erode global supplies. Aluminum and tin also extended gains while zinc declined.

Copper inventories monitored by the LME fell to 545,475 metric tons, an exchange report today showed. The amount of copper scheduled to be taken out of warehouses, known as canceled warrants, jumped to the highest in a year. …. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Metalmarkets.org.uk: Precious metals prices were lower in New York on Thursday after the demand for gold declined as equities markets gained enough that investors were not as worried about finding safe places to put their cash.

Price gains in the recent rally, which took the price of gold above $1,000 per troy ounce for a time, have many investors waiting for better prices to come along, with one analyst predicting that demand could return after gold drops below $920 per troy ounce….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Eeo.com.cn: China plans to spend 100 billion yuan in the next two year to spur the development of non-ferrous metal and logistics sectors.

The plan, announced on the Chinese government portal (www.gov.cn) on Thursday, was part of a scheme to revitalise both the sectors badly hit by the current economic slowdown. It was approved by the State Council’s standing conference, chaired by Premier Wen Jiabao on Feb 25….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From IHT: Tumbling exports have prompted Taiwan and Thailand to push down their respective currencies, but an Asia-wide round of depreciation is unlikely because of fears it would hurt consumer spending and bring capital outflows.

Weaker currencies contributed to the region’s export-led recovery from the 1997-8 financial crisis, but analysts say the current export slump has been caused largely by collapsing demand in the West, where economies are falling deeper into recession….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Rttnews.com: The euro saw mixed results against other major currencies on Thursday in New York. The single currency continued to rise versus the struggling yen, but backed off a near-term high against the pound.

The euro remained in a range with the U.S. dollar on Thursday, moving near 1.2760 in the late morning. The currencies have been in a range since the euro rose off of a 2 1/2 month low of 1.2512 late last week….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Reuters: Sterling rose broadly on Thursday, boosted by stock market gains, a government plan to insure banks’ toxic assets and losses at Royal Bank of Scotland that were less than feared.

The British government announced a scheme under which it could end up insuring more than 500 billion pounds of bad assets in an attempt to get lending flowing again….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From WSJ: The Securities and Exchange Commission is expected to receive a 13% funding boost next year, bringing its 2010 budget to a record high of more than $1 billion. The Commodity Futures Trading Commission’s budget is expected to receive a 44% boost in funding to increase it to $160 million.

“Robust markets depend on clear rules of the road enforced by strong, impartial regulators. This past year, the consequences of poor market oversight became abundantly clear,” the Office of Management and Budget said….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Engineeringnews.co.za: A new integrated commodities spot and derivatives exchange for Africa would be launched in September, Bourse Africa head of strategy Adam Gross announced earlier this month.

Addressing delegates at the tenth Southern Africa Energy Conference, held in Sandton, he explained that the exchange would, at first, trade in the energy and other commo- dities sectors. Gross said that the exchange planned to trade in African grades of crude oil, inter- national grades of crude oil, natural gas, electricity and coal….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Mondovisione.com: Borsa Italiana reached a new milestone this month as the number of ETFs on the market exceeded 300 for the first time.

The listing of seven new Exchange Traded Funds (ETFs) on Monday 16 February took the number of ETFs on Borsa Italiana’s ETFplus market to over 300, in addition to 47 Exchange Traded Commodities (ETCs)….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Portageonline.com: Commodity markets are being affected by a black swan in the financial markets according to an agricultural economist at the University of Manitoba. Brian Oleson explains a black swan is an improbable market factor that is largely ignored by people involved in the market.

He believes the black swan in the market now comes from the financial markets….. Full Article: Source

Posted on 27 February 2009 by VRS |  Email |Print

From Economist: Not so long ago, prediction markets were being tipped as a fantastic new way to forecast everything from the completion date of a vital project to a firm’s annual sales. But although they have spread beyond early-adopting companies in the technology industry, they have still not become mainstream management tools.

Even fervent advocates admit much remains to be done to convince sceptical managers of their value. “It’s still a pretty evangelical business,” says Leslie Fine of CrowdCast, one of the firms that provide trading platforms for companies keen to pool the collective wisdom of their employees….. Full Article: Source

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