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Commodities Briefing 06.Jun 2014

Posted on 06 June 2014 by VRS |  Email |Print

A more severe crackdown on the use of commodities as collateral to finance deals in China could lead to heavy losses across the asset class, analysts warn. “The profitability of the [commodity financing] schemes is being eroded, and the authorities are stepping up efforts to curb some forms of shadow banking,” said Caroline Bain, senior commodities economist at Capital Economics in a note.
In typical commodity financing deals Chinese companies obtain a letter of credit, use it to import a commodity - copper for instance - sell that commodity in the local market or deploy it as collateral and use that money to invest in higher yielding assets before paying back the original loan………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

India’s new government may be the catalyst for the next global commodity supercycle, according to HSBC. Narendra Modi’s landslide presidential election victory gave his nationalist Bharatiya Janata Party a strong mandate for reform, especially within India’s poor infrastructure sector - a key source of hard commodities demand.
India is already a large commodities producer but HSBC argues that if Modi increases infrastructure investment, demand for commodities such as steel and energy will outpace domestic supply, boosting global prices………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

The outlook for natural resources funds is at its most positive for many years, according to Investec’s Bradley George, but he warns more confidence is needed for the sector to rally in a meaningful way.
Following a period of very poor returns, commodity-focused funds have rebounded significantly since the start of the year. George, manager of the £150m Investec Enhanced Natural Resources fund, says he is far more bullish than he was this time 12 months ago as he thinks the trend should continue………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Much has been made about the role that hydraulic fracturing – or fracking — has played in revolutionizing the energy landscape, unlocking vast new reserves of oil trapped in shale rock. This “tight oil” is pouring into the global pool of oil supplies at a crucial time, preventing oil prices from spiking in an age of high demand and geopolitical turmoil.
But the world still relies overwhelmingly on conventional oil production from existing fields, many of which are in decline. The Middle East has dominated the world of oil for half a century and as the list below shows, it remains king. Here are the top five most important oil fields in the world………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

OPEC isn’t moving oil markets like it used to. As Saudi Arabia, the world’s largest oil exporter, has acted with more independence and crude prices stabilized, the group’s gatherings in Vienna to discuss output have lost potency.
The CHART OF THE DAY shows how the Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil, is meeting less frequently and having a smaller effect on prices. The impact of OPEC’s output decisions, measured by how much the price of international benchmark Brent crude moved after meetings compared with the daily average for that year, was ten times greater in 2008 than 2013, according to data compiled by Bloomberg………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

When Opec last met six months ago the discussion in and around its secretariat building in central Vienna centred on how the oil cartel might have to cut production to accommodate rising output from a trio of countries – Iran, Iraq and Libya.
But as oil ministers from the 12 member countries prepare to gather in the Austrian capital for next week’s meeting, there is a different talking point. The focus is no longer about reducing production but whether Opec can pump enough oil to meet the “call”, or demand for its crude, given the growing number of problems among its member countries………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

A looming energy investment shortfall risks derailing carbon-reduction targets the International Energy Agency (IEA) has warned. In a new report, World Energy Investment Outlook, the IEA said that to meet global energy demand, around $40 trillion will need to be invested by 2035, while a further $8 trillion will need to be spent on energy efficiency.
“The reliability and sustainability of our future energy system depends on investment,” IEA executive director Maria van der Hoeven said. “There is a real risk of shortfalls, with knock-on effects on regional or global energy security, as well as the risk that investments are misdirected because environmental impacts are not properly reflected in prices.”……………………………………….Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

A new paper led by the Smith School for Enterprise and the Environment at the University of Oxford examines the environmental, economic and political implications of unconventional fuel sources like shale gas and tight oil.
It suggests that these novel resources could be a “blessing for the global economy,” but also that the implications go far beyond the economic dimension—redrawing the global map in terms of trade balances, economic competitiveness and, most importantly, the geopolitical balance………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Societe Generale raised its near-term gold forecast, but said it remains very bearish over the medium to long term and continues to recommend selling gold rallies. In a note dated Wednesday, it raised its 2014 average gold price forecast to $1,272 an ounce, attributing the increase to support from the Crimean crisis. Reports said the previous forecast was $1,180. Prices for the August gold futures contract traded at $1,253.70 an ounce on Comex Thursday.
But Societe Generale said gold is likely to trade well below $1,200 next year, and to break below $1,000 in 2016 when the Federal Reserve is “likely to hike rates at a much faster pace than currently discounted by the market.”……………………………………….Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Analysts look to the gold price history as a tool to make predictions about the yellow metal’s direction. Investors can use this history as well, to better understand the complexities of the gold market. A good place to start when examining the gold price history is the 1970s. Up until the early ’70s, gold prices hardly fluctuated by more than a dollar or two.
You see, the U.S. dollar used to be pegged to gold, and international currencies used to be fixed to the U.S. dollar. Under the Bretton Woods system of international finance exchange, the dollar could be converted to gold at an agreed-upon, fixed rate of $35 per ounce. And the United States was committed to backing every dollar overseas with gold………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Comex gold futures are seen consolidating in a broad range moving with a bearish bias. As mentioned in the previous update, prices could further accelerate towards $1,245 or even lower to $1,220-25. An immediate target is around $1,220-25 levels. Failure to find support here could be seen a sign of weakness further denting sentiment.
Subsequently, prices have the potential to even test $1,185-90 range. Mild oversold conditions prevailing in charts could see a pullback to resistances in the coming week. Resistances will be seen at $1,260 followed by $1,278 now. Only a move above $1,285 could lessen the chances of the expected decline to above mentioned levels………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Gold climbed the most in three weeks as commodities held declines, heading for the longest losing streak since January, after the European Central Bank unveiled measures to spur the economy and fight deflation.
The Standard & Poor’s GSCI gauge of 24 raw materials fell 0.4 percent for a fifth day of declines, lead by soybeans and wheat. Gold rallied as much as 1.1 percent to $1,257.73 an ounce in London, the biggest gain since May 14, as some traders closed bets on falling prices. Copper also fell………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Gold may have found something of a temporary range in the $1240s over the past week. Sentiment has moved against it and barring some unforeseen event it may continue to fall through the early northern summer – traditionally a weak time for precious metals. But there is a huge dichotomy in its performance in that supply/demand fundamentals continue to look ever more positive, yet gold, and other precious metals, have been continuing to fall.
Now whether this is, as some suggest, due to the machinations of the bullion banks suppressing the gold price on behalf some central banks (notably the U.S. Fed and the ECB), or just a collapse in pro-gold sentiment in the general investment arena remains to be seen, but if the latter some turnaround trigger could see gold positive sentiment return and the price soar – but when might this happen?……………………………………….Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

When Thomas Jefferson or whoever the final draftsman of the Declaration of Independence actually was (John Adams, Ben Franklin, Robert Livingston, and Roger Sherman all participated) penned the words, “Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes,” he very well might have been talking about intermarket analyses.
Here is a truth I hold to be self-evident: Markets with an inverse relationship extending back for more than two decades should not shift to a direct relationship without a compelling reason………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Nickel and aluminium are expected to trade higher on supply crunch and production cuts. Angel Commodities said in monthly report that aluminium prices may gain on production cuts by the global producers Alcoa and Rusal which may shift the market balance into deficit. The metal would benefit from global sale of cars and light commercial vehicles which accounts for 20% of metal use.
Vehicle sales are expected to rise 5% in 2014 to a record 88.4 mn vehicles, thereby boosting the demand. Further, delivery delays at warehouses monitored by the LME exceed two years; will act as a positive factor for prices. With strong demand side fundamentals for Nickel, prices will trade on a positive note taking cues from the supply crunch that is likely to intensify as the Chinese higher grade ores stocks are about to exhaust in a month………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

“2013 was a year that forced the global mining industry to realign expectations in one of the most difficult operating environments for years,” said PwC in its latest Mine report published Thursday. Led by gold’s greatest decline in three decades, commodity prices decreased significantly and mining stocks fell 23% in 2013.
Coupled with record impairments of $57 billion last year, global mining’s net profits plunged 72% to a decade low of $20 billion in 2013. Gold miners endured another particularly bad year, losing $110 billion off market capitalization, accounting for almost 40% of the overall reduction in market capitalization last year. “Five gold companies fell out of the Top 40 in 2013, exacerbating this drop in value,” PwC noted………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

One of China’s busiest ports is investigating whether aluminium and copper stocks have been used multiple times as collateral against loans, reigniting concerns about financing activity in the world’s biggest commodity consumer. The case, which could have implications for western banks and trading houses, comes amid a crackdown on shadow financing and corruption in China.
A private Chinese metals company is alleged to have pledged the aluminium and copper stocks stored at warehouses in Qingdao as collateral for loans more than once………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Making metal is a dirty business, and we don’t just mean in terms of getting your hands dirty. Creating useable metals from the ores that are dug from the ground is a heavily polluting endeavor—but it might be about to get a whole lot cleaner.
Most metals are created in a two-step process. First, the excavated ores are ground down and filtered to get rid of the obvious junk and intruder metal ores, leaving just the metal oxides—metallic atoms bound up with other elements including oxygen, as opposed to in its pure form………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

ETF Securities Ltd., an exchange-traded-products provider with about $19 billion of assets, proposed an alternative to the century-old London silver fixing benchmark process that’s set to end in August.
The proposal made to the London Bullion Market Association would use a five-minute auction process that occurs on the London Stock Exchange and based on ETF Securities’ silver-backed fund that trades on the bourse, said Graham Tuckwell, chairman and founder of the Jersey-based company. The company is talking to the LSE about moving the auction capability from 4:30 p.m. to noon, when the present silver fixing process is held, he said………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

While other banks are nervously pulling back from commodity and energy derivatives trading, Citi is boldly pushing ahead. With so many major players withdrawing from all or part of the market during the past few years, commodity and energy trading suddenly seems like a hostile environment for investment banks.
But at a time when so many banks are scaling back their ambitions in commodity and energy derivatives, Citi stands out for a level of commitment that has baffled some of its less bullish rivals. As other banks nervously pull back, Citi is boldly pushing ahead………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

So the ECB has introduced negative deposit rates, as was widely expected. Whether this will work to boost bank lending is open to question; Denmark had negative deposit rates and it acted as a tax on them, which they had to recoup from customers. But it might work to weaken the euro; the single currency has dropped 0.6% against the dollar at the time of writing.
(This may be because the ECB did quite a lot more than making rates negative; it added a loan facility for non-financial companies, for example.) David Bloom at HSBC says that The ECB has argued it does not have an exchange rate target, but it is clear that a weaker EUR will be a critical element in the ECB achieving its inflation target………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

The race among central bankers to be the biggest dove continues unabated (including Draghi’s efforts today), and as a result , a low-risk return on capital has become even more difficult for investors. There aren’t many major currencies whose central bank wouldn’t be happy to see a decline, and while Draghi was careful to mention that the exchange rate was not a policy target as such, we all know which direction would make him happier.
As mentioned earlier the search for yield has resulted in added demand for the higher yielding currencies like AUD and NZD. There has also been demand for precious metals which have been under the cosh for some time. It’s not that there is a fear of a return to high inflation, but now that the era of negative interest rates is upon us, it’s just difficult to find a home for cash………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

The southwestern city of Chongqing will be the seventh region in China to launch carbon trading when its market opens on June 13, the local carbon exchange said Thursday, in a move designed to curb the city’s greenhouse gas emissions.
The market is the last of China’s planned pilot CO2 markets ahead of the launch of a nationwide scheme later this decade as the world’s biggest-emitting nation steps up efforts to slow down rapid emissions growth………………………………………..Full Article: Source

Posted on 06 June 2014 by VRS |  Email |Print

Leaders the world over are moving to ensure their countries are reducing their carbon emissions, and the latest change along these lines has come from US president Barack Obama. South Africa, like it or not, has a seat on the bus of the global economy and this bus is heading slowly but surely in the direction of taxing or pricing carbon-dioxide emissions. And no, we can’t get off.
In a long-anticipated move, President Obama announced a new proposed rule that will look to reduce the carbon dioxide emissions of the United States by 30% from 2005 levels. Under this proposed rule, states will have until June 2016 to make their own rules on how to reduce their average emissions per megawatt-hour of electricity on pain of having an Environmental Protection Agency plan imposed upon them………………………………………..Full Article: Source

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