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Commodities Briefing 29.Apr 2014

Posted on 29 April 2014 by VRS |  Email |Print

Commodity trading firms are not systemically risky because they do not engage in the sort of maturity transformation that banks do. They also tend mostly to operate on a hedged basis, via “basis trade” exposure.
Short-term assets meanwhile are funded with short-term debt while long-term assets are funded with long-term debt, meaning the institutions are not heavily leveraged at all, though balance sheets are exposed to liquidity or rollover risk………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

A number of the world’s big banks have either dumped or downsized their commodities trading businesses because of falling returns. The latest, Barclays, announced last week it will stop the majority of its commodities activities as it ups its focus on electronic trading. The UK bank will continue to trade precious metals.
In March JPMorgan Chase sold off its commodities division to Swiss trading company Mercuria for $3.5 billion and has also retained precious metal trading activities………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Barclays Bank, one of the world’s largest commodities trader, plans to pull out of trading in base metals, energy and agricultural products, and fold its precious-metals business into its currency-trading unit, as part of an effort to shrink its investment bank and improve returns.
Morgan Stanley, Deutsche Bank, UBS and Royal Bank of Scotland have already reduced or halted their commodities business. The above five dealers once controlled about 70 percent of global commodities trading volume………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Banks are selling off their commodity divisions for regulatory reasons but also because commodities are turning out to be less profitable for them than they used to be.
On which note, an interesting development has emerged since banks started winding down their commodity divisions in 2013. According to David Bicchetti and Nicolas Maystre, who wrote a paper in 2012 highlighting increasing correlations between a number of major commodities and indices from 2008 onward, these correlations have now begun to dissipate………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

The song “Physical” was a 1981 hit by Olivia Newton-John and it conjures up the yearning that some investors have for hard or physical assets. Aside from other tangible property like real estate or collectibles, commodities play an important role in a diversified portfolio.
Unfortunately, most people aren’t farmers and don’t have adequate storage space for 300 bushels of corn or a herd of cattle. Perhaps, that’s why so many individual investors own little to no commodities inside their portfolios. And that’s really the value proposition of commodity-based ETPs: to deliver affordable market exposure to an important asset class that investors would otherwise miss………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

The United States announced additional sanctions on Russian individuals and businesses on Monday over the crisis in Ukraine, leading to growing fears in commodity markets of possible supply disruptions.
While the sanctions from the United States - expected to be followed by additional sanctions from the European Union this week - have not directly targeted Russia’s commodity exports, Washington on Monday added Igor Sechin, head of Russia state energy champion Rosneft to the list. Russia is the world’s second-largest oil exporter and supplies 30 percent of Europe’s natural gas………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Petrol prices have been ticking up in recent weeks, mostly for seasonal reasons. But the broader picture, Mr Hamilton points out, is one of surprising stability in prices. For most of the last three years oil has hovered around $100 a barrel, and the price of petrol has been correspondingly flat.
But there is another way of looking at this stability; prices have remained relatively high in order to temper demand growth and keep it in line with available supply growth. But for the North American oil bonanza, global demand would have to have been considerably more muted; indeed, it may have needed to decline (at a time while the world economy was growing steadily). That would presumably have taken a far higher price of oil………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

The commodity strategists at Morgan Stanley write that record demand from China won’t be enough to keep gold’s price above $1,200 per ounce in the coming year, much less help it rise. On the contrary, the firm’s Joel Crane and six co-authors argue instance that weaker Chinese demand could the thing that causes prices to erode even more.
Here’s how that could happen: The weakening yuan. The Chinese currency’s downswing reduces the purchasing power of Chinese consumers, cutting down the amount of gold each yuan can buy………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

China’s gold imports from Hong Kong dropped in March as local prices fell below the international benchmark in London for the first time in more than a year.
Net imports totaled 80.6 metric tons last month, compared with 111.4 tons in February and a record 130 tons a year earlier, according to calculations by Bloomberg News based on data from the Hong Kong Census and Statistics Department……………………………………….Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

“Silver has the worst story of all the metals,” says Adam Klopfenstein, a senior market strategist with Archer Financial Services, citing the bountiful supplies and silver’s tendency to move in tandem with gold.
On top of the potential for higher interest rates, the silver market has been inundated with supplies of the metal. HSBC expects a 3.4% increase in the silver supply to 1.09 billion troy ounces in 2014, while demand will remain nearly unchanged at some 938 million ounces………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Talks between South Africa’s biggest three Platinum producers and their unions collapsed Thursday and the companies said they would take their latest wage offer directly to employees. South Africa’s longest and most damaging mining strike in living memory is not about to come to an abrupt end as both sides strive to win rank and file hearts and minds in a high stakes war of attrition on the platinum belt, Reuters reported.
Leaders of the Association of Mineworkers and Construction Union (AMCU) have signalled their displeasure with the offer from the world’s top three producers, Anglo American Platinum, Impala Platinum and Lonmin………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Copper prices have been beset by constant pressure since striking all-time highs of $10,100 per tonne back in February 2011. Fresh concerns over Chinese demand pushed prices to their cheapest for almost four years last month around $6,420, and with a backdrop of surging supply and demand doubts striking investor appetite for the bellwether metal, the stage appears set for copper to endure fresh waves of heavy price weakness.
Metals consultancy Thomson Reuters GFMS says in its Copper Survey 2014 that it expects the red metal to average $6,790 per tonne in 2014, down from an average of $7,346 last year………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Quarterly mergers-and-acquisition activity in the global metals market dropped to its lowest level since 2008 as over-capacity and weak pricing, particularly in the steel segment, remains a concern among buyers, consultancy and accountancy firm PriceWaterHouseCoopers said Monday.
During the first quarter of 2014, there were 13 transactions valued at $50 million or more, totaling $3.3 billion–a 78% decline in deal value from the fourth quarter of 2013, which registered 20 deals worth $15.1 billion, PwC said in its quarterly report. PwC’s M&A metals analysis comprises deals announced in the steel, iron ore, aluminum, copper, nickel and other-non precious metal sectors………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Do ETFs impact the volatility of the underlying stocks they are based on? We study whether exchange traded funds (ETFs)—an asset of increasing importance—impact the volatility of their underlying stocks. Using identification strategies based on the mechanical variation in ETF ownership, we present evidence that stocks owned by ETFs exhibit significantly higher intraday and daily volatility.
We estimate that an increase of one standard deviation in ETF ownership is associated with an increase of 16% in daily stock volatility. The driving channel appears to be arbitrage activity between ETFs and the underlying stocks………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Thanks to the ongoing geopolitical tensions in Russia, the energy commodity world has been in the limelight this year and has been performing quite well. Though that’s the case, there have been several winners in the soft commodity space too. Some commodities, such as sugar, have made fresh highs and are continuing with their uptrend.
A global supply glut for the past four years had led to huge stockpiles leading to a slump in sugar prices. However, things are expected to look up this year and prices likely to take a U-turn. Extreme weather conditions in Brazil – the world’s biggest producer and exporter of sugar – are expected to adversely hit sugar supply………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

There has been mixed research on gold. According to Saxo Bank, gold saw a sixth consecutive week of outflows in exchange traded products last week.
Investors traditionally buy gold as a safe-haven asset at times of uncertainty, but ongoing fears about the political crisis in Ukraine have been offset by confidence in the US economy, the research says. The EU and the US have imposed sanctions on Russian officials linked to president Vladimir Putin, in response to Moscow’s annexing of Crimea………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Hedge funds appear to have been wrong-footed by the rebound in US grain and soybean prices last week on weather and Ukraine fears, cutting their bullish bets on corn and wheat in the run-up to the recovery.
Managed money, a proxy for speculators, cut its net long in future and options in the top 13 US-traded agricultural commodities by more than 40,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Bitcoin is a decentralised, peer-to-peer, electronic payment system. This basically means that there is no central body controlling the Bitcoin network, and it’s managed and regulated by its users. Unlike other electronic payment systems, it also has its own virtual currency, bitcoin. The network has a finite supply of 21 million bitcoins.
Where can you use bitcoins? Make donations: If you’re a user of Wordpress or popular websites like Reddit, 4Chan, The Pirate Bay, EZTV and The Internet Archive, you can use bitcoins to make donations……………………………………….Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

It seems the People’s Bank of China (PBOC) cannot win. In late February, the gradual appreciation of the renminbi was interrupted by a 1 per cent depreciation (to $1:¥6.12). Though insignificant in overall trade terms, especially when compared with the volatility of floating exchange-rate regimes, the renminbi’s unexpected weakening sparked a global furor.
This is hardly surprising. After all, China has been under constant pressure from foreign governments to revalue, in the mistaken belief that a stronger currency would reduce China’s large trade surplus. And, since July 2005, when the exchange rate was $1:¥8.28 (and had been held constant for 10 years), the PBOC has implemented more or less steady appreciations of about 3 per cent per year through 2013………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

At first glance, using a greenhouse gas to produce more fossil fuel appears to offer a futile and counterproductive solution to today’s climate-change crisis. But that is exactly what the Department of Energy, the oil industry, and some environmental groups are advocating.
They are touting enhanced oil recovery (EOR) as a pathway to reduce atmospheric CO2 emissions. EOR is a method used by the oil industry to produce more oil by injecting highly pressurized supercritical CO2 into partially depleted oil fields to recover oil left behind from previous drilling operations………………………………………..Full Article: Source

Posted on 29 April 2014 by VRS |  Email |Print

Airlines set to remain on the fringes of the EU ETS until at least 2016, disappointing environmentalists and market observers hoping for better liquidity A decision to exempt most of the global airline industry from the European Union Emissions Trading System (EU ETS) means that aviation is unlikely to play a role in boosting the fortunes of the flagging scheme in the near future, say market participants.
Since the EU ETS was launched in 2005, the continent’s economic malaise has created an oversupply of European Union Allowances (EUAs), leading to rock-bottom prices………………………………………..Full Article: Source

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